Buying a home a is a big step for many people, but lots of times it comes with a big learning curve. If you’re a homeowner, you should familiarize yourself with the deductions, housing allowances, and other programs that that are available to people who own their own home.
When it comes to home ownership, the IRS considers a home to be a house, condominium, cooperative apartment, mobile home, houseboat or house trailer that contains a sleeping space, toilet and cooking facilities.
Most home buyers take out a mortgage to buy their home and then make monthly payments on the mortgage. This payment often includes several different costs of owning a home, but only some of those costs are deductible. These costs are deductible:
- state and local real estate taxes (subject to the $10,000 limit)
- home mortgage interest (within the allowed limits)
- mortgage insurance premiums
These expenses of home ownership cannot be deducted:
- Insurance, other than mortgage insurance, including fire and comprehensive coverage, and title insurance
- The amount applied to reduce the principal of the mortgage
- Wages you pay for domestic help
- The cost of utilities, such as gas, electricity, or water
- Most settlement or closing costs
- Forfeited deposits, down payments, or earnest money
- Internet or Wi-Fi system or service
- Homeowners’ association fees, condominium association fees, or common charges
- Home repairs
Mortgage interest credit
The mortgage interest credit is meant to help people with lower incomes afford home ownership. If you qualify, you can claim the credit each year for part of the home mortgage interest you pay.
You may be eligible for the credit if you were issued a qualified Mortgage Credit Certificate from your state or local government. An MCC is issued only for a new mortgage for the purchase of a main home. The MCC will show the certificate credit rate you should use to figure your credit. It will also show the certified indebtedness amount and only the interest on that amount qualifies for the credit.
Homeowners Assistance Fund
The Homeowners Assistance Fund program provides financial assistance to eligible homeowners for paying some expenses related to their principal residence to prevent mortgage delinquencies, defaults, foreclosures, loss of utilities or home energy services, and also displacements of homeowners experiencing financial hardship after January 21, 2020.
Minister’s or military housing allowance
Ministers and members of the uniformed services who receive a nontaxable housing allowance can still deduct their real estate taxes and home mortgage interest. They don’t have to reduce their deductions based on the allowance.
This article carries no official authority, and its contents should not be acted upon without professional advice. For more information about this topic, please contact our office.