Homeowner Tax Advantages You Might Not Know
- 4 min
What you'll learn.
- Tax benefits homeowners should utilize.
- Selling your home has tax perks, too.
If you’re new to the homeownership club, welcome. If you’ve been here awhile, it’s good to see you! No matter where you are in your ownership journey, you should be aware of the many different tax benefits that you can, and should, be taking advantage of.
We can all agree that lowering your tax bill is worth the added effort. Here are the tax breaks you may be able to take advantage of as a homeowner.
1 – Mortgage interest
This is usually the most significant tax break you’ll receive, since a big chunk of your monthly mortgage payment goes towards paying off interest for a while after your purchase. All of the interest you pay during the tax year will be deductible. If you happen to own properties with mortgages balances over a million dollars, the IRS will limit your deductible interest.
2 – Discount points
You might have paid to have your interest rate reduced when you initially purchased your home.
If you purchased a new home or built a new home, you may be able to deduct the points in the year you paid them if the home is your primary residence and the amount you paid was deemed a reasonable amount.
If you refinanced, you’re also eligible to deduct points, but it requires you to do some math. If you paid points during a refinance, they have to be deducted over the life of the loan.
3- Property taxes
No matter where you live, you’re going to be paying some sort of property tax for your home. If your mortgage servicer has been paying your taxes for you, you’ve most likely been paying 1/12th of the total tax bill as part of your monthly mortgage payment into an escrow account. You probably even paid some pro-rated taxes at closing too.
Good news! Your payment of taxes is completely tax deductible if you itemize them on Schedule A. During the first year that you purchased your home, the taxes paid on the property will be split between buyer and the seller. The buyer can only write off what they have paid for the home during that calendar year.
4 – Home office expenses
Yep, you read that right. If you work out of your home then you can deduct expenses for your office, that part of your home is technically your place of business. So why not write that one off, too? Working from home has its perks!
5 – Mortgage insurance premiums
If you put less than 20 percent down when you purchased your home, odds are you’re paying mortgage insurance premiums (MIP). You’re in luck, this premium you pay monthly is actually tax deductible!
6 – Medical home improvements
If you find yourself in a circumstance where you need to install equipment to ease the burden you’re having, like a wheelchair ramp or other medical related reasons. The IRS enables you to deduct the installation of that equipment in your home.
7- Energy-efficient upgrades
You’re also eligible to gain a tax credit on the cost of purchasing and installing energy-efficient items that generate electricity! It pays to utilize the sun and wind. Don’t forget, that you can also gain credit for geothermal heat pumps and even solar water heaters! Energy-efficiency is key to benefiting on your tax returns!
Selling your home has its perks too
If you’re thinking about selling your home, or just want to understand the potential benefits for tax purposes this is a great place to start.
8 – Tax-free home sales profit
While this exemption is only available every two years, it’s still one to take advantage of when you’re selling your home. The IRS rule is, you have to live in your home for two out of the five years that you own it. You can sell your primary residence exempt of capital gains taxes on the first $250,000 of your home. Note, if you file married you’re allotted $500,000.
If you meet these eligibility requirements from the IRS, you'll be able to sell your home capital gains tax-free as stated above.
9 – Tax and penalty-free IRA
Secrets out! You can tap into your IRA once you hit a certain age and not have to pay the 10% penalty, you just have to make sure that you wait until you’re 59 and a half. We know, the half part is weird but what the IRS wants, the IRS gets. Perhaps that’s a reason to start celebrating your half birthday?
10 – Home equity loans
This deduction has a bit more limitations on it than the others above. You can deduct mortgage-related interest both single or filing married, if single up to $375,000 and those filing together up to $750,000.
The amount includes the interest you pay on your mortgage as well as the home equity loan, HELOC or refinance. We understand it might be a bit confusing, if you have questions about this, you can visit the IRS website.
11 – Withholding adjustments
We know the bittersweet feelings that come along with tax season. One minute you’re scrambling to find all the documentation needed for filing, then you watch that number within TurboTax (or whichever platform you’re using) go up and down based off the numbers you’re inputting.
Whether you owe Uncle Sam or depend on that large chunk of money for your summer vacation, know that you’re able to adjust your withholdings.
Typically, the best time to adjust these withholdings is when you start a new job, but if you experience life changes like getting married, buying a home, or adopting a child you’re able to adjust.
The benefits of tax deductions vary but because you’re a homeowner, we want to help you save money! We're in the business of lending you peace of mind in all aspects of your homeownership ventures!