Tax Breaks for Homeowners: What You Need to Know
Owning a home comes with numerous financial benefits, including various tax breaks that can help homeowners save money. Here's a guide to some of the essential tax breaks available to homeowners:
One of the most significant tax breaks for homeowners is the mortgage interest deduction. Homeowners can deduct the interest paid on their mortgage loan, reducing their taxable income and potentially lowering their overall tax bill. Homeowners can also deduct the property taxes they pay on their primary residence from their taxable income. This deduction can provide significant savings, especially for homeowners in areas with high property tax rates.
If you use a portion of your home exclusively for business purposes, you may be eligible for the home office deduction. This deduction allows you to deduct a percentage of your home-related expenses, such as utilities, mortgage interest, and property taxes, based on the size of your home office relative to your total home size.
Interest paid on home equity loans or lines of credit used for home improvements may also be deductible. However, the Tax Cuts and Jobs Act of 2017 imposed stricter rules on this deduction, limiting it to cases where the funds are used to "buy, build, or substantially improve" the home. Homeowners who make energy-efficient improvements to their homes, such as installing solar panels or energy-efficient windows, may be eligible for tax credits.
These credits can help offset the cost of the improvements and encourage homeowners to make environmentally friendly upgrades. When you sell your primary residence, you can exclude up to $250,000 ($500,000 for married couples filing jointly) in capital gains from taxation, provided you meet certain eligibility criteria. To qualify, you must have owned and used the home as your primary residence for at least two of the past five years.
While less common, homeowners who sell their homes at a loss may be able to deduct the loss on their tax returns. However, the rules for claiming this deduction are complex and may vary depending on the circumstances of the sale. As a homeowner, taking advantage of available tax breaks can lead to significant savings over time. Be sure to consult with a tax professional or financial advisor to ensure you're maximizing your tax benefits and staying compliant with current tax laws.
By understanding the various tax breaks available to homeowners, you can make informed decisions about your finances and potentially save money on your tax bill each year.
