One of the biggest advantages of owning a home—beyond having a place to call your own—is the range of tax benefits that come with it. If you’ve been renting or are a new homeowner, you might not be aware of all the ways homeownership can reduce your tax bill. Here’s a breakdown of the top homeowner tax benefits that can put money back in your pocket.
1. Mortgage Interest Deduction
One of the most significant tax benefits of owning a home is the ability to deduct mortgage interest. For most homeowners, the bulk of their mortgage payment in the early years goes toward interest. The good news? The interest you pay on a mortgage (up to $750,000 for loans taken out after 2017) is tax-deductible.
How it works: If you have a mortgage on your primary residence or a second home, you can deduct the interest you pay each year from your taxable income, which can significantly lower your tax bill. This is particularly helpful for new homeowners, as interest payments tend to be higher early on in the loan.
2. Property Tax Deduction
As a homeowner, you also pay property taxes, and those payments are deductible as well. The deduction allows you to subtract up to $10,000 ($5,000 if married filing separately) in state and local property taxes from your federal taxes.
How it works: This deduction can reduce your taxable income, making it another great way to keep more of your money. It applies not only to taxes on your home but also on any other real estate you own, such as vacation properties.
3. Home Office Deduction
If you use part of your home exclusively for business purposes, you may qualify for a home office deduction. Whether you’re self-employed, running a small business, or working remotely, this tax benefit can be a game changer for homeowners who work from home.
How it works: You can deduct a portion of your home’s expenses, including mortgage interest, utilities, and insurance, based on the square footage of the office space relative to your entire home. For example, if your home office takes up 10% of your house, you can deduct 10% of qualifying expenses.
4. Home Improvements for Medical Purposes
If you’ve made home improvements for medical reasons, such as installing accessibility ramps, widening doorways, or adding handrails, you may be able to deduct those costs as medical expenses. These improvements must be medically necessary, and the deductions apply to both the improvement costs and the installation.
How it works: To qualify, the medical expenses must exceed 7.5% of your adjusted gross income. The improvements must also not increase the overall value of your home. If they do, only the portion that does not increase the home’s value is deductible.
5. Energy-Efficient Home Improvement Credits
Going green with your home can also save you money at tax time. The federal government offers tax credits for homeowners who make energy-efficient improvements, such as installing solar panels, energy-efficient windows, or energy-saving HVAC systems.
How it works: The current credit allows you to claim 30% of the cost of qualifying home improvements on your taxes. So, if you spend $10,000 on energy-efficient upgrades, you could receive a $3,000 tax credit. It’s a direct reduction in the amount of taxes you owe, which makes this an incredibly valuable benefit.
6. Capital Gains Exclusion
When it comes time to sell your home, the capital gains exclusion can save you from paying taxes on a significant portion of your profit. If you’ve lived in your home for at least two of the last five years, you can exclude up to $250,000 of your profit ($500,000 for married couples) from capital gains taxes.
How it works: For example, if you bought your home for $300,000 and sell it for $550,000, you’ve made a $250,000 profit. Under this exclusion, you won’t pay any capital gains taxes on that amount. This benefit helps many homeowners maximize the financial rewards of selling a home.
Ready to Maximize Your Homeowner Tax Benefits?
Owning a home can offer much more than a roof over your head—it can lead to significant tax savings. Whether you’re a new homeowner or have been in your home for years, it’s worth exploring how these tax benefits can improve your financial picture.
If you have questions about how these deductions work or need help planning for your next tax season, feel free to reach out. Together, we can ensure you’re taking full advantage of all the perks that come with homeownership!
You Have Questions, We Have Answers
Selling a house can be both exciting and stressful! There are many things to consider when preparing a home for sale including pricing, repairs/upgrades, paperwork preparation etc… Hopefully this article has provided insight into some of the most commonly asked questions by home sellers so they can better prepare themselves for what lies ahead! If you still have unanswered questions or need assistance getting started with selling your house make sure to contact an experienced real estate agent who can help guide you through the entire process from start to finish! Visit our website to keep yourself updated with the latest trends!
