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Home Ownership Tax Advantages

We can’t ignore the fact that paying taxes is a burden. It’s an obligation for homebuyers in America and one of the many challenges of having your own home. However, paying taxes shouldn’t steer you away from owning a home. In fact, the real estate industry regularly crosses with politics and solutions are made. 

Homeowners could benefit from tax advantages including deductions and discounts. It’s just a matter of doing research and finding out which advantages you qualify for. That’s why we’ve put together this article. Find out some of the key tax advantages of home ownership. 

How Tax Benefits Work

The tedious process of filing taxes includes your credits and deductions. A credit represents money taken off of your tax bill just like a coupon. It’s a reduction dollar for dollar on your tax bill. A tax deduction is when you lower your taxable income, which results in lower taxes to pay. As a homeowner, you may qualify for hundreds of different deductions or credits. It’s about finding out what you’re eligible for and cutting down your tax bill.

Selling Your Home

The IRS usually wants their piece of the pie when you sell anything. A key tax advantage for homeowners is that you can get a break when you sell your home. Did you both own and live in your home for at least two years out of five before deciding to sell? Then you’re likely eligible for a break. 

Single-filers won’t pay taxes on the first $250,000 profit. Married-filers could double this amount if they both qualify. It’s best practice to keep notes and receipts on your home maintenance expenses for proof that you’ve lived there. 

Owning Rental Property

Owning a rental property such as a multi-family home has tax break advantages too. The income generated from rent doesn’t classify as “earned income”. Most of the time, earned income falls under either self-employed or FICA tax (think your W-2’s). 

The IRS doesn’t look at rental income as a paystub from your job or self-employed earnings. You can catch a break from taxes which is incredibly helpful if you’re already receiving a positive cash flow from rent. 

First Time Home Buyer Incentives

Credits were introduced in 2008 so first time buyers could afford their first home. Now in 2021, the Biden Administration issued a new credit based on the same idea in 2008. There’s a tax credit for first home buyers that goes up to $15,000. It’s available right away from the moment that you close the deal on your first home. You don’t even have to wait for the credit benefits during the year after.

Mortgage Rate Breaks

Home mortgage interest is any interest that you pay on a loan such as your mortgage. Generally you can deduct all of the interest from your home mortgage on the first $750,000 ($375,000 if married filing separately). The deduction allows you to cut down on your taxable income based on the dollars spent on interest. It applies to almost any type of housing property and gives you a tax advantage. 

Green Renovations

The US government provides incentives for homeowners open to energy-efficient solutions. You should consider making green improvements to your home because they add home value, cut down utility expenses, and it’s better for the environment. They also have a tax advantage. Green renovations that qualify for the residential energy credit include:

  • Solar electric property
  • Solar water heaters
  • Wind turbines
  • Fuel cell property
  • Energy-efficient windows, doors, and skylights
  • Energy-efficient heating and AC units 
  • Biomass stoves

The residential energy credit could save you between 10% to 26% of what you paid for qualifying green renovations, depending on when they were installed. Keep in mind that it’s a non-refundable tax credit, so you won’t receive money if the amount falls below zero dollars owed. 

Additional Home Ownership Tax Advantages

There are plenty of tax breaks out there that apply to all types of homebuyers. You can always hire a tax professional to help you find tax advantages even if you don’t fully understand your financial situation. Here’s a list of a few more tax advantages and breaks: 

Real Estate Taxes

Dollars spent on property tax is still deductible. Check your 1098 form or automatic transfer records if you’ve already paid real estate taxes. The amount deducted altogether from state, local, and property taxes has to be under $10,000 before you qualify. 

Mortgage Points

You can deduct mortgage points that you paid upfront after you closed on a purchased home. A mortgage point is equal to one percent of your loan amount. 

Home Office

Lots of people are working from home today. If you converted a room into a home office used for business purposes you can deduct that too. You have to prove to the IRS that your home is a primary location for your business. 

Tax Relief for Homeowners

Home ownership shouldn’t scare you just because of taxes. Everybody has to pay taxes, but understanding the system could shrink down your bill when it’s time to file. Start keeping organized receipts and records of your home transactions. Even though it’s a lot to think about, you never know what kind of tax advantages you have as a homeowner. Worst case scenario, find a tax professional that could figure your financial situation out and offer more tax relief solutions. 

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Brian Burds

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