Making the dream of owning a home a reality is a big step for many people. Whether a fixer-upper or dream home, homeownership is a milestone that can come with a learning curve. First-time homeowners should make themselves familiar with authorized deductions, programs that can assist with home ownership and the use of housing allowances that can be beneficial.
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 loan to buy their home and then make monthly payments to the mortgage holder. This payment may include several costs of owning a home. The only costs the homeowner can deduct are:
Taxpayers must file Form 1040, U.S. Individual Income Tax Return or Form 1040-SR, U.S. Income Tax Return for Seniors, and itemize their deductions to deduct home ownership expenses. However, taxpayers can’t take the standard deduction if they itemize.
Homeowners can’t deduct any of the following items.
The mortgage interest credit is meant to help individuals with lower income afford home ownership. Those who qualify can claim the credit each year for part of the home mortgage interest paid.
A homeowner may be eligible for the credit if they were issued a qualified Mortgage Credit Certificate from their 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 the homeowner will use to figure their credit. It will also show the certified indebtedness amount and only the interest on that amount qualifies for the credit.
The Homeowners Assistance Fund program provides financial assistance to eligible homeowners for paying certain 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.
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.