How to Make Your Home Work for You at Tax Time

This probably should have been posted sooner because the tax deadline is about a week away and most of you have filed already. This might help renters decide to get into homeownership in the near future if they've been sitting on the fence.

When people think about owning a home, they often focus on the costs—mortgage payments, repairs, insurance, and property taxes. But what many homeowners don’t realize is that their house can actually help them save money at tax time. Tax laws allow homeowners to deduct certain expenses, claim credits, and lower their overall tax bill—sometimes by thousands of dollars.

A lot of people assume that owning a home is more expensive than renting, especially when they look at the monthly mortgage payment. But what they often forget to factor in are the tax breaks that come with homeownership. Things like mortgage interest and property tax deductions can really add up and lower your taxable income. When you take those savings into account, owning a home can actually be more affordable than renting—especially in the long run.

If you’ve bought a house recently or are a long-time homeowner, you might be eligible for valuable tax benefits. The key is knowing what deductions and credits are available, keeping the right records, and understanding how to claim them correctly.

In this guide, we’ll break down:

✔ Major tax deductions for homeowners
✔ Credits that can get you money back (like energy-efficient upgrades)
✔ How renters and homeowners compare in terms of tax benefits
✔ A checklist of documents you’ll need at tax time

By the end, you’ll know exactly which tax breaks apply to you and how to maximize your savings.

1. How Owning a Home Lowers Your Tax Bill

The U.S. tax system offers financial incentives for homeownership because it encourages stability and investment in communities. When you own a home, many of your expenses—mortgage interest, property taxes, and even home improvements—can reduce your taxable income or qualify you for special credits.

Unlike renters, homeowners can:
- Deduct interest costs from their taxes
- Write off property taxes (up to a limit)
- Claim home office expenses (if self-employed)
- Get tax credits for green upgrades (like solar panels)

These benefits can lower your tax bill or increase your refund, making homeownership more affordable in the long run.

2. Top Tax Deductions for Homeowners

Mortgage Interest Deduction

One of the biggest tax breaks for homeowners is the mortgage interest deduction. Every time you make a mortgage payment, part of it goes toward interest—and that amount can be deducted from your taxable income.

Key details:
✔ Applies to loans up to $750,000 ($375,000 if married filing separately).
✔ Most beneficial in the early years of your mortgage when interest payments are highest.
✔ You’ll need Form 1098 from your lender, which shows how much interest you paid.

Example: If you paid $12,000 in mortgage interest last year and you’re in the 22% tax bracket, you could save $2,640 on your taxes by deducting that interest.

Property Tax Deduction

Property taxes can be expensive, but fortunately, you can deduct up to $10,000 per year ($5,000 if filing separately) for state and local property taxes.

What counts?
✔ Municipal property taxes (assessed annually)
✔ Local school taxes (if tied to your property value)

Important: You must itemize deductions (instead of taking the standard deduction) to claim this benefit.

Home Office Deduction (For Self-Employed & Remote Workers)

If you work from home, you might qualify for the home office deduction, which lets you deduct part of your housing expenses as a business cost.

Who qualifies?
✔ Self-employed workers (freelancers, business owners, gig workers)
✔ Remote employees (in some cases)—check IRS rules

What can you deduct?
✔ A portion of mortgage interest, rent, utilities, and internet based on home office size.
✔ Direct expenses (like a new desk or printer for work).

How it works: If your home office is 10% of your home’s square footage, you can deduct 10% of eligible housing costs.

Home Equity Loan Interest (In Some Cases)

If you took out a home equity loan or line of credit (HELOC) and used the money for home improvements, the interest may be tax-deductible.

Rules to know:
✔ The loan must be used to buy, build, or substantially improve your home.
✔ Deduction applies only to interest on loans up to $750,000 (combined with your mortgage).

Tax Credits for Homeowners

Unlike deductions (which reduce taxable income), tax credits directly lower your tax bill dollar-for-dollar, making them even more valuable.

Energy-Efficient Home Improvement Credit

If you installed solar panels, energy-efficient windows, or insulation, you may qualify for a credit worth 30% of the cost (up to certain limits).

Eligible improvements (2023-2032):
✔ Solar panels, solar water heaters
✔ Heat pumps, energy-efficient HVAC systems
✔ New windows, doors, insulation, and roofing

Example: If you spent $10,000 on solar panels, you could get a $3,000 tax credit.

Residential Clean Energy Credit

This is separate from general efficiency upgrades and applies to:
✔ Solar electricity systems
✔ Wind turbines
✔ Geothermal heat pumps
✔ Fuel cells

Credit amount: Up to 30% of the cost.

Renters vs. Homeowners: Who Saves More on Taxes?

Bottom Line: While renting has fewer financial responsibilities, homeownership provides long-term tax advantages that can add up to thousands in savings annually. I've written several blog posts about owning a home vs renting and sometimes it's not just about the money. Some people do not want any kind of upkeep, even in a condominium situation where they'd usually be responsible for the interior of the unit. And others don't plan to stay in an area long-term so although they might prefer homeownership, it probably wouldn't benefit them financially with short-term living. 

Tax Checklist for Homeowners (Documents to Gather)

Before filing taxes, collect these records:

✅ Form 1098 (from your lender—shows mortgage interest paid)
✅ Property tax statements (paid throughout the year)
✅ Home improvement receipts (especially for energy-efficient upgrades)
✅ Home office records (square footage, utility bills, business use breakdown)
✅ Closing documents (if you bought or sold a home in the past year)
✅ Energy credit paperwork (for solar panels or other green upgrades)

Final Thoughts: Should You Talk to a Tax Professional?

This guide covers the most common homeowner tax breaks, but everyone’s situation is different. Consider consulting a tax professional if:
✔ You sold your home last year
✔ You use part of your home for a business or rental
✔ You made major renovations (like adding solar panels)
✔ You’re unsure whether to itemize deductions or take the standard deduction

The best way to ensure you maximize your tax savings is to understand the rules, keep good records, and get expert advice when needed.

Key Takeaways:
1. Homeowners can deduct mortgage interest and property taxes.
2. Credits for energy-efficient upgrades can provide direct savings.
3. Self-employed workers may qualify for home office deductions.
4. Keeping organized records makes tax filing easier.
5. When in doubt, consult a tax pro to avoid missing valuable deductions.

By taking advantage of these tax benefits, you can make homeownership more affordable while building wealth for the future. Happy filing!