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Your Home as a Tax Shelter: Top Ten Tax Deductions for Owning Your Home
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4. Home Improvement Loan Interest
If you take out a loan to make substantial home improvements, you can deduct the interest, with no dollar limit. However, the work must be a "capital improvement" rather than ordinary repairs.
Qualifying capital improvements are those that increase your home's value, prolong its life, or adapt it to new uses. For example, qualifying improvements might include adding a new roof, fence, swimming pool, garage, porch, built-in appliances, insulation, heating/cooling systems, landscaping, or more. (Keep in mind that increasing the square footage of your home could trigger a reassessment and higher property taxes, though.)
Work that doesn't qualify for an interest deduction includes repairs such as repainting, plastering, wallpapering, replacing broken or cracked tiles, patching your roof, repairing broken windows, and fixing minor leaks. Wait until you are about to sell your home to gain tax benefits from repair work. (See Selling Costs and Capital Improvements, below.) However, you can use a home equity loan up to the limits discussed above to make repairs, and deduct the interest.
5. Property Taxes
Often referred to as "real estate taxes," property taxes are fully deductible from your income. If you have an impound or escrow account, you can't deduct escrow money held for property taxes until the money is actually used to pay your property taxes. And a city or state property tax refund reduces your federal deduction by a like amount.
6. Home Office Deduction
If you use a portion of your home exclusively for business purposes, you may be able to deduct home costs related to that portion, such as a percentage of your insurance and repair costs, and depreciation. For details, see Home Business Tax Deductions: Keep What You Earn, by Stephen Fishman (Nolo).
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