In addition to things like building equity and making improvements without fearing a ding to your security deposit, homeownership comes with some unique tax benefits. The biggest perk? As a homeowner, you have the option to take an itemized deduction that subtracts mortgage interest from your taxable income — lowering the amount of taxes you owe.
First things first: Mark April 18, 2023 on your calendar; it’s the IRS tax deadline for filing 2022 returns. If you bought a home in 2022 (or prior) here’s what you should know about filing your taxes in 2023, according to certified public accountants.
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You can deduct your mortgage interest.
If you took out a mortgage to purchase your home, be on the lookout for Form 1098, which will be mailed to you and can be found in your mortgage payment portal. This form breaks down what portion of your mortgage payments went toward interest, property taxes, mortgage insurance and, if applicable, points or loan origination fees. All of these can be tax deductible if the homebuyer itemizes their deductions, says Colin Smith, a CPA who has a practice in the Cleveland, Ohio area and runs CPAExam Maven, which helps aspiring accountants prepare for CPA exams.
Most tax filers take the standard deduction when they’re doing their taxes, but about 25 percent will itemize — and it’s often homeownership that puts you above the threshold to do so, explains Kari Brummond, an accountant and content strategist with TaxCure.com.
For tax year 2022 (which you file at the beginning of 2023), the standard deduction is $12,950 for single filers and $25,900 for married filers, Brummond points out. Alternatively, you can itemize, which just means that you add up all of your qualifying expenses and you claim that amount instead of the standard deduction.
“You should only itemize if your total exceeds the standard deduction,” she says. “To see if your new home qualifies you to itemize, add up your mortgage interest, property tax, amounts paid for discount points, and private mortgage insurance (PMI).”
You can tap your IRA without penalties.
If you need to gather up more money for your down payment, dipping into your retirement fund is an option. Many first-time buyers don’t know that they can tap their IRAs or Roth IRAs and avoid penalties, Smith says. First-time homebuyers buyers can withdraw up to $10k from their IRA without incurring the 10 percent early-withdrawal penalty, and those with Roth IRA accounts can withdraw 100 percent of their contributions penalty-free after five years.
“These options give new homeowners lots of flexibility in how they finance the purchase of their home or make repairs,” he says.
If you’re renting out a room in your home, be prepared to pay income taxes on the rental revenue.
Before homeownership, you probably never thought about how a roommate would affect your tax situation. But if you house hack (i.e. you own a home and rent a room out to help cover your mortgage or generate some spending cash), you need to report that income to the IRS. Same goes if you’re renting out a spare room on Airbnb.
Do keep your receipts for any rental business activity, though, Smith says, so that you can deduct any expenses.
You may get some renewable energy credits.
The Inflation Reduction Act of 2022 brought about a ton of renewable energy credits that many first-time homebuyers can take advantage of when making capital improvements to their property, Smith says.
Up to 30 percent of the cost of new installations of renewable energy equipment such as charging stations will be deductible in 2023, he says.
Federal income tax credits are also available, providing up to $3,200 annually to lower the cost of energy efficient home upgrades. These are things like installing new doors and windows or heat pump water heaters. The bonus? Doing these will also help you save money on your energy bills.
If you dread opening up your electric bill these days, you’re not alone. Between inflation, bitterly cold weather, the war in Ukraine, and other factors, energy prices are surging — and homeowners and renters are starting to feel it in their wallets.
To help ease some of this strain, I turned to real estate experts for their best tips and advice on how to lower the electric bill. Here’s what they had to say.
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(Most, if not all, of these recommendations have the added benefit of making your home more energy efficient, which means you’ll be lowering your environmental impact while also saving money. A win-win!)
Turn on Your Ceiling Fans
Most ceiling fans have a small switch that changes the direction of the fan blades. In the winter, spend a few seconds fiddling with the ceiling fans in your house so the blades rotate clockwise, suggests Kelly Moye, a real estate agent in Colorado. This simple tweak will help make each room feel warmer, thus saving your furnace or heater from having to work as hard.
“Heat rises and when the ceiling fans go clockwise, they push the heat down instead of letting it settle up into the ceiling,” she says.
Change Your Furnace Filter
You can help your furnace run more efficiently — which will save you money in the long run — by changing the filter regularly, says Moye. You can find lots of YouTube videos showing you exactly how to do this, and you can typically find filters at home improvement stores starting at around $10 apiece.
“It needs to be changed every month in the winter,” she says. “When there is proper airflow through the furnace, it doesn’t have to work as hard to heat the house. Most people forget that they need to be changed as often as they do.”
Take the time to program your home’s thermostat so you’re not wasting energy during the times of day or days of the week when it’s OK for your home to be a little chillier. For instance, if you leave your house and head to work from 9 a.m. to 5 p.m. on weekdays, you might turn the temperature down a few degrees during the day, then bump it back up to a more comfortable level around the time you get home. Similarly, you might turn down the heat a few degrees at night while you’re sleeping.
If you travel a lot or you have a long commute, consider installing a smart thermostat that you can control from your phone, says Scott Bergmann, a real estate agent in Omaha, Nebraska.
“Installing a smart thermostat can save you a lot of money and also make your home more comfortable,” he says. “These are perfect for people who are away from home for long periods of time.”
Do some research online and look for local energy companies or sustainability nonprofits that offer free or cheap energy audits, suggests Dj Olhausen, a real estate agent in San Diego. When you schedule one, a trained professional will come to your house and evaluate its energy efficiency from top to bottom, paying special attention to insulation, air leaks, appliances, windows, and other elements.
The U.S. Department of Energy also offers tips for running a DIY energy audit on your own house, which is totally free.
“Double-check if windows are air sealed to avoid wasting air conditioning or heat,” suggests real estate agent Augusto Bittencourt.
Use Smaller, Localized Heating and Cooling Systems
Running the air conditioner or heater to adjust the temperature throughout your home can get expensive. If you spend a lot of time in one room — say, a home office — consider investing in a portable air conditioner unit or a space heater to help keep that room comfortable.
“These are great ways to control the climate of an individual room, rather than wasting electricity on a whole house,” says Olhausen.
Consider Solar Panels and Other Big Upgrades
If you can afford it, consider investing in solar panels, energy-efficient appliances, newer windows, upgraded siding, and other pieces of your home’s infrastructure, suggests real estate broker Mihal Gartenberg.
“Homeowners must consider the cost/benefit before embarking on such updates,” she says.
Spending money now should pay off later if you eventually sell your house. You can also sometimes find rebates or tax credits for these types of updates, with a little digging. Also keep in mind that the new federal infrastructure bill, signed into law by President Joe Biden in August, includes lots of money for home upgrades, so keep an eye out for more details in the near future.
Even if big changes like these aren’t in the budget, you can still make smaller, more affordable swaps. Bittencourt recommends swapping in LED bulbs, which you can change out one lamp at a time if you need to.
I’ve never fainted in my life, but I came close to doing so recently when I received the first heating oil bill of the year. My knees buckled and the air around me grew hazy. Ah, the woes of being a homeowner in the Northeast as another winter approaches!
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I know I’m not the only one whose heating bill causes consternation. But aside from moving someplace with a more reasonable climate in the wintertime — sorry, my husband and I aren’t ready to be snowbirds yet — we’re stuck paying hefty energy costs to stay warm.
Or are we? I decided to check in with some real estate agents experienced in making old, drafty homes look warm and inviting to buyers. Good news: There’s more than one way to save money on heating bills. Keep reading to see what those pros had to say.
Real estate agents might be all about location, location, location, but when it comes to saving on energy bills, it’s about insulation, insulation, insulation.
“Insulation is crucial to cut down on energy bills,” says Cam Dowski, real estate investor and founder of WeBuyHousesChicago.co. “If the house doesn’t have insulation in the attic, the warm air inside will escape via the roof. If your boiler has to work more to provide heat, your heating bills will go up.”
Maureen McDermut is a Realtor in Santa Barbara and Montecito, California, where she has helped many clients sell historic homes that are big on charm, but not so much on energy efficiency. “One of the first things I suggest is having an insulation contractor come out and insulate the attic,” she says. “Most homes have very little insulation in the attic, or at least not enough to be energy-efficient.” Of course, homeowners in her neck of the woods don’t have to contend with frigid winters. But insulation can keep your house warm and cool, depending on the season.
Install a Smart Thermostat
“Installing an adjustable, programmable thermostat is the single most important thing that homeowners can do to save money on heating bills,” says Jon Sanborn, a licensed real estate agent in San Diego and cofounder of SD House Guys, a home buying firm.
A smart thermostat makes it easy to program temperature schedules as well as make adjustments from your smartphone or tablet. Some smart devices can even “learn” your temperature preferences and do the programming for you. This is not about being too lazy to walk over to the device to raise or lower the heat. It’s about setting up an automated system so that the heat kicks on only when you’re at home and awake, not when you’re away or asleep under warm covers.
The U.S. Department of Energy says you can save up to 10 percent of your energy bill by dialing back your heat seven to 10 degrees for eight hours a day. That might seem like a big temperature swing if you’re on the chilly side, but the point here is to lower the heat to some degree (no pun intended) when you don’t need it as much.
“Your home can lose the slightest heat possible if you heat only when necessary,” says Dowski. “So if you are looking to maximize your central heating energy efficiency (and save some money), then you are probably better off only using the heating when needed.
When you install a smart thermostat, you’ll not only save on energy bills, but you’ll recoup your costs on the device itself rather quickly. They range in price, but it’s possible to get a good one for under $100. If you’ve already got a common wire (C-wire) in your home, you might even be able to install a smart thermostat yourself. Not sure which wire is which? It’s always best to call in a professional electrician before you start messing around with your home’s electrical system.
Part of the reason for my near-fainting spell over our heating bill was that in addition to getting the tank filled up, we swapped our old oil burner for a new, more energy-efficient version. But we already see an improvement in the way our house heats, so it’s money well spent.
While we won’t save per gallon — oil prices are what they are — the serviceperson did say our savings would come by less oil used. So far, so good. I’ve been checking the gauge and see that our oil heater is sipping rather than gulping fuel this season.
If you’re not in a position to upgrade your HVAC system, at least get it serviced. We pay for a service plan that allows for an annual maintenance check — the company actually calls to remind us to book the appointment — along with free service calls if needed. If your energy company offers a service plan, purchase it for peace of mind this winter.
Other Small Fixes Can Pay Off Big Time
Sam Sawyer, founder of cloud brokerage Pinnacle Realty Advisors, offers the following tips that should be added to every homeowner’s seasonal task list:
“These are all minor but very important things to consider when buying an older property,” says Sawyer. “Collectively, it can save the homeowner thousands of dollars and a lot of headaches.”
Not sure which windows are the culprits? Call in a pro to evaluate, says McDermut. “While we don’t get cold weather often [in Southern California], we do have heat, and your air conditioning can leak out of a poorly sealed window just the same,” she says.
Or, you could just hang up heavier curtains, says Dowski. “Look for thermally lined curtains, or line your existing ones with inexpensive fabric to achieve the same effect,” he says. (I’ve got thermal curtains in some rooms in my home and they work remarkably well to prevent heat loss.
Doing even one of these tasks is enough to make a difference in your home’s energy efficiency. But the more you do, the more you’ll start saving on your heating bill. And that’s enough to make any homeowner feel warm and fuzzy inside.
Kara Nesvig grew up on a sugar beet farm in rural North Dakota and did her first professional interview with Steven Tyler at age 14. She has written for publications including Teen Vogue, Allure and Wit & Delight. She lives in an adorable 1920s house in St. Paul with her husband, their Cavalier King Charles Spaniel Dandelion and many, many pairs of shoes. Kara is a voracious reader, Britney Spears superfan and copywriter — in that order.
Kara Nesvig grew up on a sugar beet farm in rural North Dakota and did her first professional interview with Steven Tyler at age 14. She has written for publications including Teen Vogue, Allure and Wit & Delight. She lives in an adorable 1920s house in St. Paul with her husband, their Cavalier King Charles Spaniel Dandelion and many, many pairs of shoes. Kara is a voracious reader, Britney Spears superfan and copywriter — in that order.
