5 Tax Breaks for Homeowners for 2024

What are tax deductions?

Tax deductions are specific expenses or items that can reduce your taxable income, lowering the amount of taxes you owe.

The IRS (Internal Revenue Service) offers deductions to encourage certain behaviors, such as homeownership, charitable giving and the coverage of substantial medical costs, by providing financial relief through reduced tax obligations.

Standardized vs. Itemized Deductions

A standard deduction is a fixed, predetermined amount established by the tax authorities that is available to all eligible taxpayers, regardless of their actual expenses. On the other hand, itemized deductions require taxpayers to list and calculate their specific deductible expenses.

Common items that people itemize on their taxes include mortgage interest, property taxes, medical and dental expenses, charitable contributions, educational expenses and more.

Let’s take a look at how standard and itemized deductions compare side by side:

The amount of income you can deduct will differ depending on which tax filing method you decide on. If your expenses exceed the standardized deduction, itemizing may help you save more on your taxes. But if your expenses are low or similar to the standardized deduction, using the standard deduction is easier and still reduces your taxable income.

To ensure your eligibility for homeowner tax deductions, make sure to consult the IRS’ Tax Information for Homeowners.

Now that we’ve covered the basics, let’s dive into 5 tax breaks that your homeowner status may reward you.

1. VA Funding Fee

The VA funding fee is a one-time fee paid by most borrowers using a VA home loan to help offset the cost of the loan program for the Department of Veterans Affairs. All Veteran homebuyers who use the VA loan must pay the funding fee unless they are exempt.

You can deduct the VA funding fee from your taxable income as long as you claim it in the same tax year as you paid for it. If you rolled the funding fee into your mortgage, you can only write off the amount you paid in the tax year you are filing.

Where do I deduct the VA Funding Fee?

To write off the VA funding fee, list it on Box 5, “Mortgage Insurance Premiums” of IRS Form 1098.

2. Mortgage Interest

Homeowners can deduct mortgage interest on their taxes by itemizing their deductions on their federal income tax return using IRS Form 1040.

To qualify for this deduction, your mortgage must be for a primary residence or a second home, and your mortgage debt must be under $375,000 for single filers and $750,000 for those filing jointly.

You must provide your lender's Form 1098, which details the interest paid during the tax year.’

Veterans United Form 1098

If you are obtaining a home loan through Veterans United, you can find your Form 1098 on myVU.

3. Property Taxes

Most homeowners must pay property taxes at the state and local levels. If you are a Veteran, you may qualify for a property tax exemption at the state level. To qualify for a property tax deduction, you must own property and pay real estate taxes on it.

Homeowners can deduct property taxes by itemizing their deductions when filing their federal income tax return using IRS Form 1040. Joint filers can deduct up to $10,000 of property taxes, while single filers can deduct up to $5,000.

4. Discount Point Fees

Discount points are fees you pay to lower the interest rate on your mortgage. Typically, one discount point is equivalent to 1% of the mortgage cost. Discount points are usually tax-deductible, but the filer must meet certain criteria set by the IRS:

• Primary residence: The loan in question must be used to purchase or improve your primary residence. Vacation homes and investment properties generally do not qualify.
• Deductible points: The points paid must be legitimate discount points, typically paid to lower the interest rate on the mortgage. The IRS considers these points as prepaid interest.
• Origination fee: Ensure the points you paid are included in the origination fee. This fee should be itemized on the settlement statement you received during your mortgage closing.
• Itemize deductions: To claim the deduction for discount points, you'll need to itemize your deductions on Schedule A of your federal tax return (Form 1040).
• Deductible amount: The amount of discount points you can deduct will vary based on your specific mortgage terms and the number of points paid. You can typically deduct the total amount of points paid in the year of purchase.
• Form 1098: Your lender should provide you with a Form 1098, which summarizes the deductible mortgage interest, including points paid. Ensure that the information on this form is accurate.
• Maintain documentation: Keep records, including the Closing Disclosure from your mortgage closing, to support the points you paid. These documents serve as evidence of the discount points you claimed.

5. Moving Expenses

Unfortunately, many moving expenses no longer qualify for tax deductions. The Tax Cuts and Jobs Act (TCJA) passed in 2017 eliminated most moving expense deductions for tax years 2018 through 2025.

Are military moving expenses tax deductible?

Service members who moved due to military orders or PCS can deduct a portion of their moving expenses. Generally, the IRS allows the following PCS-related expenses to be deducted:

• Gas and vehicle mileage costs
• Renting a moving truck or trailer
• Packing expenses
• In-transit storage
• Moving insurance

Service members who moved due to a PCS order can deduct unreimbursed moving expenses on IRS Form 3093. A separate Form 3093 should be used for each qualifying move.

Non-deductible Home Expenses

While homeowners can benefit from various tax deductions, there are also common homeowner expenses that are generally non-deductible from taxes:

• Basic homeowners insurance
• Homeowners Association (HOA) fees
• Home repairs and maintenance
• Utilities
• Closing costs
• Home inspection fees
• Home improvements for aesthetic purposes
• Home depreciation
• Earnest money

Everyone’s situation is different. It is highly recommended to consult with a tax professional for a complete picture of what you can and can’t deduct.

Homeowner Tax Questions

Is there a VA loan first-time homebuyer tax credit?

The first-time homebuyer tax credit is a key feature of the First-Time Homebuyer Act bill that would allow a $15,000 refundable tax credit for first-time homebuyers. If passed, this tax credit would be available for all first-time homeowners.

Is home sale income taxed?

Homebuyers selling their current home should be aware of capital gains tax, which is a tax on the profit of an asset. Capital gains tax applies to all mortgage types – including VA loans.

When selling a primary residence, the profit you earn is exempt from capital gains tax up to the first $250,000 for a single-filing taxpayer or the first $500,000 in profit for joint filers.

Profits over those thresholds are usually taxed at the normal rate.

Is there a tax credit for Energy Efficient Mortgages?

The IRS offers “Residential Energy Tax Credits,” which would apply to homeowners taking out an energy-efficient mortgage (EEM). The IRS offers up to $3,200 for homeowners who make qualified energy-efficient home improvements.

In essence, homeowner tax deductions are powerful tools that can significantly alleviate financial burdens associated with owning a property. These deductions offer avenues for savings, providing homeowners with tangible ways to reduce their tax liabilities. Leveraging these deductions effectively can not only ease immediate financial strains but also contribute to long-term financial stability and increased savings.

For any additional questions, reach out to a Veterans United Home Loan Expert at 855-870-8845.