Standard vs Itemized Deductions for Homeowners: What You Need to Know

Owning a home opens the door to new responsibilities, and new tax benefits too! When it’s time to file your taxes as a homeowner, you might be wondering whether to take the standard deduction or go with itemized deductions. The choice can affect how much you owe or get back, especially when you're a homeowner. If you’re looking to make the most of your tax return, understanding this difference is key.

No worries though, I’ve got you! We’re going to walk through what both kinds of deductions mean, when each one makes sense, and how to figure out which one could benefit you more as a homeowner.

What are Tax Deductions?

Let’s start with the basics. A tax deduction reduces the amount of your income that’s subject to taxes. Lower taxable income usually means less tax owed, which is always a good thing. There are two main types: standard deductions and itemized deductions.

• The standard deduction is a flat amount that the IRS lets you claim. It’s simple, it’s automatic, and it changes slightly every year.
• Itemized deductions let you list out specific expenses, like mortgage interest or property taxes, and deduct them individually. This method takes more effort but might give you a bigger tax benefit depending on your situation.

Standard Deduction Basics

The standard deduction is kind of like the fast pass of tax prep. You don’t need to provide any receipts or breakdowns. You just claim a fixed dollar amount based on your filing status.

For the 2023 tax year, the standard deduction amounts are:

• $13,850 if you’re filing single or married filing separately
• $20,800 if you’re head of household
• $27,700 if you’re married filing jointly

This number goes up a bit if you’re over 65 or if you’re blind.

It’s the simpler option and works great when your deductible expenses don’t add up to more than the standard amount.

Itemized Deductions for Homeowners

Homeowners are in a special group of people who often benefit from itemizing. This is because many costs that come with owning a home are actually deductible.

Here are some common deductions homeowners might qualify for:

Mortgage Interest

If you have a mortgage, the interest you pay on loans up to a certain amount may be deductible. For most people, mortgage interest is a big reason why itemizing could make sense.

Property Taxes

State and local property taxes can also be deducted up to a total limit of $10,000. This includes both your property tax and either your state income or sales tax.

Home Equity Loan Interest

If you took out a home equity loan and used it to improve your home, the interest on that loan might also be deductible. But if you used the money for something else, like a vacation or paying off other debt, it usually doesn’t count.

Mortgage Insurance Premiums

Depending on your income and when you took out your loan, you may be able to deduct mortgage insurance premiums. This one’s a bit more complex, but it’s worth asking about when you file.

Charitable Donations

While not just for homeowners, many people who itemize also deduct charitable gifts. If you’re already on the itemizing route, don’t forget about these.

Medical Expenses

If your medical costs for the year were really high, as in more than 7.5% of your income, you might be able to itemize those costs too.

Standard vs Itemized: Which One Should Homeowners Pick?

Alright, so which one is better? It all depends on your personal finances. Let’s break it down.

Itemizing could be the way to go if:

• Your mortgage interest and property taxes alone come close to or pass the standard deduction amount.
• You had large medical bills, major charitable donations, or other deductible expenses during the year.
• You live in a high-property-tax location.

But stick with the standard deduction if:

• Your itemized deductions total less than the standard deduction amount.
• You didn’t have many deductible expenses this year.
• You want to keep your tax prep simple and quick.

Real-Life Example

Let’s say you bought a home in 2023 and paid $9,000 in mortgage interest and $5,000 in property taxes. That’s $14,000 in deductions.

If you’re single and your standard deduction is $13,850, itemizing might get you a slightly larger deduction. But if you’re married filing jointly, and your standard deduction is $27,700, you might just want to take the standard.

What Changes When You Own a Home?

Buying a home can totally change your tax situation. Before being a homeowner, the standard deduction might’ve made the most sense for your simpler tax return. But once you start paying mortgage interest, property taxes, and maybe even have a home office, your potential for deductions grows.

Also keep in mind tax laws can shift, and some deductions have changed over the years. For example, the SALT cap (State and Local Tax cap) sets a $10,000 limit on what you can deduct for state and local taxes. That’s especially important in areas with high state taxes or property taxes.

Filing Tips for Homeowners

Here are a few helpful tips to keep in mind when tax season rolls around:

• Gather your Form 1098 from your lender. This form shows how much mortgage interest and other housing-related items you paid.
• Track your property tax payments. Sometimes these are rolled into your mortgage payments, and the lender reports them. But not always, so double-check.
• Account for any points paid on your mortgage. Points paid to lower your interest rate can potentially be deducted the year you buy your home.
• Keep records of home improvements. Some home upgrades can add to your home’s basis if you’re looking at selling down the road—which could affect your capital gains tax.

When in Doubt, Compare Both Methods

The great thing is you don’t have to choose randomly. You can calculate your tax refund, or what you owe, both ways. Many online tax software platforms (and tax professionals) do this for you. They’ll show if itemizing saves you more money, or if you’ll get a bigger refund by sticking with the standard deduction. Seeing both options side by side can help you feel confident in whichever direction you choose.

Key Takeaways

• The standard deduction is easier, but itemizing can sometimes save homeowners more money.
• Homeowners may itemize things like mortgage interest, property taxes, and home equity loan interest.
• If your itemized deductions total more than the standard deduction, itemizing might be worth the extra effort.
• It's totally okay to calculate both and go with the higher deduction—it’s about doing what works best for you.

Choosing between the standard and itemized deductions as a homeowner isn’t about guessing. It comes down to comparing the numbers and considering how much you spent on eligible expenses. With the right documents, a bit of organization, and the right tools or help in place, figuring this out doesn’t have to be stressful. Whether you stick with the standard or go for itemizing, understanding your options helps you file smarter and feel in control every tax season.