Business & Finance Taxes

Tax Deductible Expenses Related to Home Ownership

By Business & Finance Last updated Monday, June/03/2024

Considerations

Homeowners can take tax deductions for home expenses on Internal Revenue Service (IRS) Form 1040, Schedule A, for both their main and second home. The IRS defines a home as a cooperative, mobile home, house, house boat, condominium or any residence with toilet facilities, a sleeping area and a place for cooking.

Homeowners cannot deduct most types of insurance, depreciation and utility costs on their federal tax return unless they use their home for business purposes.

Homeowners who have a primary home loan or home equity line of credit securitized by their first or second home can deduct from their federal taxes any expenses paid for private mortgage insurance premiums. They can also deduct interest payments associated with a first mortgage or home equity line of credit on up to $1 million in property, according to Wells Fargo.

Homeowners can also write off expenses for prepaid mortgage points that reduce the interest rate on their home loan. If a property owner pays off his mortgage early and owes a prepayment penalty to his mortgage company, he can take a full deduction for the amount charged.

Homeowners can deduct city, county and state property taxes charged as a percentage of their home’s assessed value. Some municipalities charge flat rate or one-time tax assessments that they use to fund public improvements, such as sidewalks or utility lines, which a homeowner cannot deduct on his tax return. The IRS does not allow property owners to take a deduction for homeowners association dues or assessments.

Homeowners who use their primary residence as a home office can deduct from their taxable income the percentage of their home they use for business purchases. In addition, they can take a deduction for the percentage of their utility costs used in operating their business, including electricity and phone and internet service. Homeowners can also take a deduction for depreciation, homeowners insurance and damage due to causality. They can claim these deductions by completing Form 8829 and then adding their allowable deduction on Form 1040, Schedule C.