Tax deductions and credits play a crucial role in helping homeowners save money when tax season rolls around. While many homeowners know about deducting loan interest payments, it's easy to miss out on other valuable tax breaks related to homeownership, especially those that have changed for the 2023 tax year. Taking the time to explore all potential deductions and credits can significantly boost your tax refund. 

The first step in taking advantage of tax deductions for homeowners is deciding if itemizing or taking the standard deduction will be more beneficial. Opting for itemization allows homeowners to deduct mortgage loan interest, insurance premiums, and points paid, provided the total deductions exceed the standard IRS threshold. These deductions are typically documented on Form 1098, which mortgage lenders send to borrowers. Additionally, interest on home equity loans utilized for home improvements remains deductible.

Property taxes are another big deduction to add to the tally. You could claim up to $10,000 if you opt for itemization. You’ll want to keep track of your payments if you pay directly or check Form 1098 from your mortgage lender for the amount.
The biggest change for 2023 taxes involves credits for energy-efficient home improvements. In August 2022, the Inflation Reduction Act modified two credits for energy-efficient home upgrades and residential clean energy equipment, extending their duration and increasing their financial impact.

The Energy-Efficient Home Improvement Credit, previously known as the Nonbusiness Energy Property Credit, was extended and expanded under the Inflation Reduction Act. Before this, it offered a lifetime credit of $500 until December 31, 2022. Now, the credit offers up to $1,200 annually for eligible property placed in service from January 1, 2023, to January 1, 2033. With the new annual limit, homeowners can potentially claim up to $12,000 over the credit's 10-year span, compared to the previous $500 lifetime limit. 

In addition to the annual $1,200 overall limit, there are specific dollar limits for various items including $150 for home energy audits, $250 per exterior door (up to $500 a year), and $600 for other improvements including exterior windows, skylights, HVAC units and more.

On top of the $1,200 credit limit, there's an additional yearly limit of $2,000 for electric or natural gas heat pump water heaters, electric or natural gas heat pumps, biomass stoves, and biomass boilers. This means homeowners can claim a maximum total yearly energy-efficient home improvement credit of up to $3,200.

The Residential Clean Energy Credit, expanded and extended by the Inflation Reduction Act, offers a 30% tax credit for qualifying residential clean energy property expenses. This credit, applicable to property placed in service between December 31, 2021, and January 1, 2033, undergoes a gradual reduction in percentage rates, dwindling to 26% by 2033 and 22% by 2034, with no credit available after December 31, 2034. Eligible equipment includes solar panels, solar-powered water heater, wind turbines, geothermal heat pumps, fuel cells and battery storage.

Tax-deductible home improvements made for medical reasons are also often overlooked. While improvements that increase the property's value, like adding a pool for water therapy, aren't eligible for deductions, expenses incurred for medical necessities such as handrails, accessibility ramps, or widened door frames can be deducted.

Finally, self-employed individuals or business owners can leverage the home office tax deduction, provided a portion of their home is used regularly and exclusively for business purposes.

For additional guidance and a comprehensive list of professional home industry members to assist with remodeling or homeownership plans, homeowners are encouraged to explore the Home Builders Association of Greater Chattanooga’s member directory.