Tax Benefits of Homeonwerhsip - Buying, Owning & Selling

tax benefits of owning a home

Tax season is upon us. For some, the thought of the word “taxes” may spark anxiety, but for others, it may inspire hope of a tax refund. (Que the confetti!) If you’ve purchased a house this year, you might be excited about the possible tax benefits homeownership brings. What do all of these tax benefits include, you may wonder. Keep reading… 

Some things related to your home can be claimed on your taxes to help get you more of a refund (aka more money in your pocket!) Are you wondering what these items could be? We’ll explain, but first, we want to point out that not only are there tax benefits for owning a home, but also for buying and selling, too! Let’s dive into the tax benefits of buying a home first. 

You should always consult with your accountant or tax professional about whether these apply to you.

Tax Benefits of Buying a Home

Mortgage Points

Mortgage points, also known as discount points are fees that are paid directly to the lender at closing in exchange for a reduced interest rate. Sometimes you may hear the phrase, “Buying down the rate”, which can lower your monthly payments. For example, 1-point costs 1% of your mortgage amount (or $,1000 for every $100,000). 

If you paid to have your rate reduced you may be able to deduct the points (with the exception of very large loans). You also might be able to deduct the entire amount in one tax year and other times, you may deduct the points equally each year over the life of the loan.

For example: 

  • Purchased New Home or Built a New House: You may be able to deduct the points in the year you paid them IF the home is your primary residence. 
  • Home Refinances: Refinances may allow you to deduct points as well. However, if you paid points during the refinance, they will have to be deducted over the life of the loan.
  • Home Equity Line of Credit: If you used this for home improvements you can count the points in the year you bought them. 
  • Purchased Second Home/Vacation Home: These points must be deducted over the life of the loan. 

Moving Expenses for Active-Duty Armed Forces Only

These types of expenses are limited, meaning active-duty members of the armed forces are allowed to deduct this type of expense. 

Tax Benefits of Owning a Home

Mortgage Interest Deduction

A big benefit of owning a home is being able to deduct the mortgage interest you pay. This deduction helps make homeownership affordable by reducing tax bills. Keep in mind, there are limits. Those depend on how much you have borrowed and when you bought

property tax deduction

 your house. For instance, if your loan is less than one million dollars, the interest you pay is tax-deductible. If you have refinanced or have gotten a home equity line of credit (HELOC), those debts may be partially deductible as well. The mortgage interest on second homes is also deductible. 

Property Tax Deduction

Ah, the dreadful property tax! No matter where you live, this is something that you will always be paying. Your property tax is based on the value of the property and it is assessed by the local government to determine how much your property is worth and how it should be taxed. 

The good news is, that if you pay taxes on your personal property and owned real estate, they may be deductible from your federal income taxes in the year you pay them. You can deduct up to $10,000 ($5,000 if married filing separately) in deductible property taxes, state and local income taxes, and sales tax. 

Home Equity Debt

Interest paid of home equity debt may also be deducted, but only if the money is used “to buy, build or substantially improve the taxpayer’s home that secures the loan,” according to the IRS. For example, if you added an addition to your house, the interest is deductible. It’s not deductible if the debt is used to pay off credit cards. 

Home Office Deduction 

Do you work from home? A lot of us do these days. We have more good news! You may deduct expenses for your home office if you’re self-employed and use part of your home for work, to meet clients, etc. go green - tax benefits

Green Energy Tax Credit

Have you gone green? You might be eligible for tax credits for improving your home with energy-efficient features and appliances. 

Medically Necessary Home Improvements 

Normally, you cannot deduct the cost of permanent improvements you make to your home. However, there is one exception. Some improvements can be deducted as medical expenses if their main purpose is medical for you, your spouse, or your dependents. 

Tax Benefits of Selling a Home

Capital Gain Exclusion Tax Benefits of Selling a Home

If you’re thinking about selling your home, more tax benefits will come into play. For instance, if you sell your principal residence at a loss, you will not be able to deduct the loss on your taxes. However, if you sell again, you may be able to exclude some or all the gain from your taxable income. Capital gain (or loss) is the difference between the price you paid for it and the price you sold your home for. 

Bottom Line:

Are you a bit more excited for tax season this year, especially if you’re a new homeowner? The thought of taxes may have haunted you in the past, but maybe not so much now knowing that homeownership has its tax perks! The only question now is, what are you going to do with your refund this year? 

If you have any questions about homeownership or how you can take advantage of tax benefits don’t hesitate to reach out to us today! 

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