Tax Deductions Every New Jersey Homeowner Should Know

Itemizing vs. the standard deduction

Homeowner deductions like mortgage interest and property tax only help if your total itemized deductions exceed the standard deduction available for your filing status. Because the standard deduction is relatively high, many homeowners, especially those with smaller mortgages or lower property tax bills, end up better off taking the standard deduction anyway. It's worth calculating both ways rather than assuming itemizing automatically wins because you own a home.

Mortgage interest

Interest paid on a mortgage used to buy, build, or substantially improve your home is generally deductible if you itemize, up to certain loan balance limits. Your lender sends a year-end statement showing the interest paid, which is the figure used on your return. Home equity loan interest is only deductible in more limited circumstances, generally when the funds were used for home improvements rather than other purposes.

Property tax, with a cap

Property tax is deductible if you itemize, but it's combined with state and local income or sales tax under a combined cap, commonly referred to as the SALT cap. Given how high property taxes tend to run in much of New Jersey, many homeowners here hit that cap using property tax alone, meaning state income tax paid doesn't add any further itemized deduction beyond it.

Other homeowner-related items worth mentioning

Points paid to obtain a mortgage, certain home office deductions if you're self-employed and use part of your home exclusively for business, and energy-efficiency related credits for qualifying home improvements can all be relevant depending on your situation. These are more situational than mortgage interest and property tax, so it's worth mentioning anything you're unsure about rather than assuming it doesn't apply.

Why this is worth reviewing every year, not just once

Refinancing, paying down your mortgage, or a change in your property tax assessment can shift whether itemizing still makes sense from year to year. A homeowner return that made sense to itemize five years ago isn't guaranteed to make sense this year, it's worth checking rather than assuming.

This article is for general informational purposes and isn't personalized tax advice. Tax rules and thresholds change from year to year, confirm current figures with your preparer or directly at IRS.gov and nj.gov/treasury/taxation before filing.