8 tax breaks for homeowners

By property taxes for upgrades and maintenance, the costs of purchase and owning a home can add up quickly. The good news is that some of these expenses can help lower your tax bill. There are several tax benefits that homeowners can take advantage of if you know where to look. Below, we explain each so you can better understand how these deductions and credits can reduce your overall tax burden.

Before we go any further, keep in mind that you will need to itemize your deductions to take advantage of these tax benefits. If you choose the standard deduction, these do not apply.

1. Tax credits for efficient home upgrades

Home improvement projects can improve the safety and functionality of your living space, but can also be tax-efficient. For home upgrades that improve your home’s energy efficiency, you may qualify for a tax credit of up to $3,200. Energy-efficient home upgrades like exterior doors and skylights can earn up to $1,200 in credits, while the remaining $2,000 can count toward things like qualified heat pumps and water heaters. Because it is a tax credit (not a deduction), the amount of tax you owe is immediately reduced.

2. Mortgage interest benefit

If you choose to itemize your deductions, you can reduce your taxable income by deducting the interest from your mortgage payments. Your total interest payments for the year will appear on your Form 1098. Couples filing jointly can deduct interest on the first $750,000 of their home’s value. If the home was purchased before 2017, that limit is $1 million. This deduction lowers your taxable income, which can reduce the amount you owe in taxes.

3. Deduction of property tax

Homeowners are allowed to deduct property taxes from their federal returns. Couples filing jointly can deduct up to $10,000, while couples filing separately can deduct $5,000. This is especially beneficial in states like New York and New Jersey, which have some of the… highest property taxes payments in the country. Keep in mind that this falls under the SALT (state and local tax) deduction limit.

4. Mortgage Loan or HELOC Deduction

Mortgage loans And home equity lines of credit (HELOC) are both financing options that are secured by the equity you have built up in your home. As with mortgage interest, the IRS allows you to deduct interest payments from this. However, this deduction only applies if the money is used to purchase, build or substantially improve the home that secures the loan. This deduction also applies to the first € 750,000 of your mortgage. If you qualify, it can help reduce your taxable income.

5. Tax breaks for home offices

For those who are self-employed and work from home, you can use your home office to reduce your tax bill. As long as it meets IRS requirements, you can use your home office to deduct from your utilities, insurance, and property taxes based on the percentage of your home’s square footage taken up by the office.

For example, for an office that takes up 6% of the surface area of ​​your home, you can deduct 6%.

Please note that your office must meet the following requirements to qualify for this tax benefit:

• Use only and regularly for business purposes
• Be your principal place of business

6. Discount points (mortgage points)

Home buyers can purchase discount points, or mortgage pointsto lower the interest on their mortgage payment. But that’s not the only thing they’re good for, as purchasing discount points can also give buyers some tax relief. According to the IRS, homeowners can only claim this deduction under certain conditions. In many cases, points are deductible in the year they are paid, although some points may need to be deducted over the life of the loan.

7. Deduction of capital gains

Most people think when it comes to stocks and investments capital gainsbut home sales also apply. When you sell your primary home, you may be able to exclude up to $250,000 in capital gains from your taxable income ($500,000 for married couples filing jointly), provided you meet the IRS’s ownership and use requirements. The amount of tax you owe depends on how long you have owned the property and your total profits. This exclusion can significantly reduce or even eliminate your capital gains taxes.

8. Deductions for rental properties

Your primary residence isn’t the only one that can help you take advantage of homeowners tax benefits. If you own one rental propertyyou can deduct expenses such as property taxes, mortgage interest, utilities, maintenance and repairs. If you rent out part of your home, you may deduct a proportionate share of these costs based on the rented space. These deductions can help offset rental income and reduce your taxable income.

Understanding these tax benefits can help you make the most of homeownership this tax season. Because tax rules can change and individual situations vary, it’s a good idea to consult a tax professional to ensure you take full advantage of the benefits available to you.

Frequently asked questions about tax benefits for homeowners

Which housing costs cannot I deduct?

While you can use some home expenses to lower your tax bill, not everything qualifies. Here are some expenses that you cannot deduct from your taxable income:

• Homeowners insurance premiums
• Mortgage principal payment
• Depreciation (for main residences)
• Deposit

Are there tax breaks for new homeowners?

While there are limited tax benefits specifically for first-time homebuyers, there are still some potential benefits. For example, while most people must pay a 10% penalty for early withdrawals from the Roth IRA, first-time homebuyers under the age of 59½ can withdraw up to $10,000 penalty-free to purchase a home.

Are disabled homeowners eligible for additional tax benefits?

There are various deduction options for people with disabilities or parents of children with disabilities. For example, legally blind homeowners may qualify for an increased standard deduction. The IRS website offers several resources for homeowners with disabilities.