Most people know that homeownership comes with great tax breaks: home mortgage interest and property taxes are deductible from federal income tax as itemized deductions. The value of these deductions should always be factored in when determining the true cost of homeownership.
However, homebuyers should be aware many of the costs of buying and owning a home are not deductible.
You cannot deduct any of the following items:
- insurance (other than mortgage insurance premiums), including fire, title and homeowners insurance;
- rent for occupying the home before closing;
- wages you pay for domestic help;
- the cost of utilities, such as gas, electricity, or water; or
- forfeited deposits, down payments, or earnest money.
Real estate taxes
Homeowners can deduct property taxes based on the assessed value of their real property. However, not all charges imposed on homeowners by local taxing authorities are deductible. These nondeductible charges include charges for services.