
5 Tax Benefits of Home Ownership: Maximizing Your Savings
Beyond the pride and joy of owning your own space, being a homeowner has some serious perks, especially when tax season rolls around. Navigating these benefits without feeling overwhelmed by complex tax laws can be daunting, but understanding them can lead to substantial financial rewards.
Capital Gains Tax Exclusion
Let's imagine you decide to sell your home after living in it for a few years. If you've owned and lived in your home for at least two of the past five years, you may qualify to exclude part or all of the profit made on the sale from capital gains tax. For example, if your profit is within the $250,000 range for a single filer or $500,000 for joint filers, you won’t owe capital gains taxes on those profits. This exclusion can be a golden ticket to retaining significant earnings.1
Tax Benefits for Home Improvements
Investing in home improvements can pay off during tax time as well. For instance, installing renewable energy features such as solar panels can provide tax credits that lessen your tax liability.2 Additionally, modifications made to accommodate medical necessities may also be deductible. Remember to save all receipts and documentation to optimize your tax returns.
Mortgage Insurance Deduction
Paying for mortgage insurance sometimes feels like an extra burden, but it can work in your favor come tax season. Under specific conditions, you can deduct the amount paid for mortgage insurance premiums. This analysis can often be an overlooked tax benefit, yet it has the potential to lighten your tax burden.
Mortgage Interest Tax Credits
Homeowners with lower incomes might be eligible for mortgage interest tax credits if they have received a Mortgage Credit Certificate from state or local governments.3 This certificate can transform a percentage of your mortgage interest into a tax credit, reducing the tax you owe. It's worth investigating this option if you fall within the qualifying income bracket.
Mortgage Interest Deduction
Perhaps the most well-known tax benefit is the mortgage interest deduction. If the interest paid on your mortgage exceeds $600 within the tax year, it can be deducted, leading to potentially significant savings.4 This deduction can substantially lower taxable income, especially in the early years of home ownership when most of your monthly payment goes toward interest.
Understanding the tax implications and benefits of home ownership is crucial. With the right knowledge, these financial perks can not only enhance the joy of owning your home but also benefit you financially during tax season. Consulting with a tax or financial professional can help you tailor these benefits to your situation. Feel free to reach out to our office for more detailed advice and personalized assistance.
Sources:
1) https://www.irs.gov/taxtopics/tc701
2) https://www.irs.gov/credits-deductions/energy-efficient-home-improvement-credit
3) https://myohiohome.org/mortgagetaxcredit.aspx
4) https://www.irs.gov/publications/p936
Disclaimer:
This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities.