Owning a home is not only a significant milestone but also offers various tax benefits that can help homeowners save money in the long run. Understanding these tax advantages can be crucial for maximizing savings and making homeownership more affordable. In this guide, we’ll explore ten tax benefits of owning or buying a home in the USA.
Mortgage Interest Deduction:
Homeowners can deduct mortgage interest paid on loans up to $750,000 for married couples filing jointly ($375,000 for single filers).
This deduction can significantly reduce taxable income, especially in the early years of a mortgage when interest payments are higher.
Property Tax Deduction:
Homeowners can deduct property taxes paid on their primary residence and any additional properties they own.
The deduction is subject to a $10,000 cap for state and local taxes, including property taxes.
Capital Gains Exclusion:
Homeowners can exclude up to $250,000 ($500,000 for married couples) in capital gains when selling their primary residence.
To qualify, homeowners must have owned and lived in the home for at least two of the past five years.
Mortgage Points Deduction:
Homebuyers who pay points to lower their mortgage interest rate can deduct these points from their taxes.
Points paid at closing are deductible in the year of purchase, providing additional tax savings.
Home Office Deduction:
Self-employed individuals or remote workers who use a dedicated space in their home for business purposes may qualify for the home office deduction.
This deduction allows taxpayers to deduct a portion of their home-related expenses, such as utilities, mortgage interest, and property taxes.
Energy Efficiency Credits:
Homeowners who make energy-efficient improvements to their homes, such as installing solar panels or energy-efficient windows, may qualify for tax credits.
These credits can offset the cost of eco-friendly upgrades while reducing tax liability.
Mortgage Insurance Premium Deduction:
Homeowners who pay mortgage insurance premiums may be eligible to deduct these premiums from their taxes.
The deduction is subject to income limits and phases out for taxpayers with higher incomes.
Home Equity Loan Interest Deduction:
Interest paid on home equity loans or lines of credit (HELOCs) used for home improvements may be deductible.
However, the Tax Cuts and Jobs Act of 2017 limited the deductibility of home equity loan interest in certain situations.
Moving Expense Deduction:
While the moving expense deduction was eliminated for most taxpayers under the Tax Cuts and Jobs Act, it may still be available for active-duty military personnel.
Military members who move due to a permanent change of station (PCS) may be able to deduct certain moving-related expenses.
Home Renovation Tax Credits:
Depending on the year and applicable tax laws, homeowners may qualify for tax credits for certain home renovations that improve energy efficiency or accessibility.
These credits incentivize homeowners to make upgrades that benefit both their homes and the environment.
Conclusion:
Owning a home offers numerous tax benefits that can help homeowners save money and build wealth over time. By taking advantage of these deductions and credits, homeowners can reduce their tax burden and enjoy greater financial security. It’s essential to consult with a tax professional or financial advisor to fully understand and leverage these tax benefits based on individual circumstances.
