Homeownership is more than just having a roof over your head; it also comes with various tax benefits that can significantly impact your financial health.
Here are a few options that can help alleviate some of the financial burden of owning a home.
Mortgage Interest Deduction
One significant tax benefit for homeowners is the mortgage interest deduction. This deduction allows homeowners to deduct the interest paid on a mortgage loan from their taxable income. This can be particularly beneficial in the early years of homeownership when most of your monthly mortgage payment goes toward interest.
To take advantage of this deduction, you need to itemize your deductions on your federal income tax return. The mortgage interest deduction is available for interest paid on loans up to $750,000 for married couples filing jointly and $375,000 for single filers or married couples filing separately.
Property Tax Deduction
Another valuable tax benefit for homeowners is the property tax deduction. This deduction allows homeowners to deduct their property taxes from their taxable income. The property tax deduction gets capped at $10,000 for married couples filing jointly and $5,000 for single filers or married couples filing separately.
If your mortgage lender handles your property taxes through an escrow account, they’ll be included in your monthly payment and paid by the lender when due. You can still deduct these taxes and receive a year-end statement from your lender detailing the amount paid.
Home Office Deduction
If you use a portion of your home exclusively for business purposes, you may be eligible to deduct expenses related to that space, including a portion of your mortgage interest, property taxes, and utilities.
Energy Efficiency Upgrades
Another tax benefit of homeownership is the ability to deduct the cost of energy-efficient upgrades. This includes installing solar panels, energy-efficient windows, or other improvements contributing to a more sustainable home.
Capital Gains Exclusion
When you sell your home, you may be eligible for a capital gains exclusion, which allows you to exclude up to $250,000 of the gain from your income (or $500,000 for married couples filing jointly).