Homeownership is not just about having a place to call your own—it comes with some significant financial advantages. One of the most impactful benefits is the array of tax breaks that can save you money each year. Here are three key tax benefits that every homeowner should know about.
1. Mortgage Interest Deduction
The mortgage interest deduction is arguably the most valuable tax benefit for homeowners. It allows you to deduct the interest you pay on your mortgage, which can significantly lower your taxable income. For most people, mortgage interest payments form a large portion of their monthly mortgage bill, especially in the early years of the loan when interest costs are high.
Who qualifies?
- Homeowners who have a mortgage loan on their primary residence or a second home.
- Taxpayers who itemize their deductions instead of taking the standard deduction.
How much can you deduct?
- You can deduct interest on the first $750,000 of mortgage debt if you purchased your home after December 15, 2017 (or up to $1 million if purchased before that date).
This deduction can lead to substantial tax savings, especially for new homeowners or those with large mortgage balances.
2. Property Tax Deduction
Another major tax benefit for homeowners is the ability to deduct state and local property taxes. If you itemize your deductions, you can claim a deduction for the property taxes you pay on your home, reducing your taxable income.
What’s the limit?
- You can deduct up to $10,000 ($5,000 if married filing separately) in combined property taxes, state income taxes, and local taxes.
While this limit may impact homeowners in high-tax states, it’s still a valuable tax-saving opportunity for many.
3. Capital Gains Exclusion on Home Sale
If you decide to sell your home, you may not have to pay taxes on the profits, thanks to the capital gains exclusion. When you sell a primary residence for a profit, you can exclude up to $250,000 of capital gains from your taxable income if you’re single, and up to $500,000 if you’re married filing jointly.
What are the qualifications?
- You must have owned and lived in the home as your primary residence for at least two out of the last five years before the sale.
- You can only claim this exclusion once every two years.
For homeowners who’ve seen their property value increase significantly, this exclusion can be a huge tax break.
Conclusion
Homeownership comes with several financial perks, and tax benefits are among the most important. The mortgage interest deduction, property tax deduction, and capital gains exclusion on home sales can collectively save homeowners thousands of dollars each year. These tax breaks not only help make homeownership more affordable but also provide long-term financial benefits. Be sure to consult a tax professional to maximize these deductions and exclusions, based on your specific situation.
By taking advantage of these benefits, you can make your home an even more powerful investment.
EMERALD TAX FIRM 