Tax Breaks Every Homeowner Should Know in 2024

Last updated on November 15, 2024

Owning a home is a significant investment; fortunately, the U.S. tax system offers several opportunities for homeowners to save money. These tax breaks help reduce the financial burden and ensure homeowners can make the most of their investments. In 2024, several new updates and existing provisions offer valuable deductions and credits that can lighten your tax bill. Here’s everything homeowners need to know to maximize tax savings this year.

1. Mortgage Interest Deduction

The mortgage interest deduction is a significant tax break for homeowners with home loans. This deduction allows taxpayers to reduce taxable income by the interest paid on a qualified home loan.

Eligibility:
- You can deduct interest on mortgages up to:
- $750,000 for loans taken after December 15, 2017.
- $1 million if the loan was secured before that date.
Primary and Secondary Homes: Interest on both primary and second homes can qualify, provided the total loan amount stays within the limit.
Points Paid on Mortgage: If you paid points to secure your mortgage, they may also be deductible.

2. Property Tax Deduction

Homeowners can deduct up to $10,000 in state and local property taxes or $5,000 if married and filing separately. The deduction includes property taxes on primary residences and other homes owned.

State and Local Tax (SALT) Limit: The SALT cap remains $10,000 for single filers and married couples filing jointly, including property and income taxes.

3. Home Equity Loan Interest Deduction

Interest on home equity loans or lines of credit (HELOCs) can still be deductible in 2024, but only if the funds are used to “buy, build, or substantially improve” the home securing the loan.

Non-Qualifying Expenses: The loan is not deductible for other purposes, such as paying off credit card debt or personal expenses.

4. Mortgage Insurance Premium Deduction

Homeowners who pay private mortgage insurance (PMI) may be eligible for a deduction. This deduction primarily benefits individuals who made smaller down payments (typically less than 20%).

Income Limit: The total deduction is available for households with an adjusted gross income (AGI) of $100,000 or less, phasing out at higher income levels.

5. Residential Energy Credits

Homeowners investing in energy-efficient home improvements are eligible for tax credits through the Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit.

Energy Efficient Home Improvement Credit:
- Offers up to 30% credit on the cost of eligible improvements.
- Includes new insulation, windows, doors, and HVAC systems.
- Credit limits apply to enhancements (e.g., $600 for windows).
Residential Clean Energy Credit: Offers 30% credit for installing solar panels, water heaters, geothermal heat pumps, or small wind turbines, with no upper limit on the credit amount.

6. Home Office Deduction

If you use a portion of your home exclusively for business, you may qualify for a home office deduction.

Eligibility Requirements: The space must be used regularly and exclusively for business purposes. Self-employed individuals benefit the most from this deduction.
Simplified vs. Actual Expenses Method:
- Simplified Method: Deduct $5 per square foot, up to 300 square feet.
- Actual Expenses Method: Deduct a portion of home-related expenses like utilities and repairs.

7. Capital Gains Exclusion

When you sell your primary residence, you may be eligible for an exclusion on capital gains, which can result in significant tax savings.

Exclusion Amounts: $250,000 for single filers; $500,000 for married couples filing jointly.
Eligibility: You must have owned and lived in the home for two out of the last five years before the sale.

8. First-Time Homebuyer Savings Accounts and Tax Credits

Some states offer first-time homebuyer savings accounts, allowing individuals to save for down payments with tax-free interest. Additionally, pending legislative developments, the federal government may reintroduce a first-time homebuyer tax credit in 2024.

9. Medical Home Improvements Deduction

Home improvements made for medical reasons, such as installing ramps or modifying bathrooms, can be deducted if insurance does not reimburse them.

Requirements: The improvements must primarily benefit a household member with medical needs. Only the amount exceeding the home’s increase in value is deductible.

10. Casualty Loss Deduction for Federally Declared Disasters

You can deduct unreimbursed losses if your home is damaged due to a federally declared disaster.

Eligibility: It only applies to areas declared federal disaster zones. The loss must exceed 10% of your AGI minus $100 per casualty.

Frequently Asked Questions (FAQs)

1. What is the maximum mortgage interest deduction for 2024?

You can deduct interest on mortgage loans up to $750,000 for loans taken after December 15, 2017, and up to $1 million for loans taken before that date.

2. Can I deduct home office expenses if I work remotely?

You can claim the deduction if you are self-employed or own a home business. However, W-2 employees working remotely, due to employer policies, cannot deduct home office expenses under current tax laws.

3. Are energy credits available for solar panel installations?

Yes, the Residential Clean Energy Credit provides a 30% tax credit for solar panel installations, with no cap on the credit amount.

4. How do I claim a casualty loss deduction?

You must file IRS Form 4684 and include documentation of the disaster and any related insurance claims. The deduction is only available for federally declared disaster areas.

5. Is PMI deductible in 2024?

Private mortgage insurance (PMI) premiums are deductible if your adjusted gross income is below $100,000.

Conclusion

This guide provides homeowners with valuable insights into available tax breaks in 2024. To maximize savings, ensure you meet the requirements for each deduction or credit. For personalized advice, consult a tax professional.