Tax Benefits of Home Ownership


What exactly are the tax benefits of home Ownership? Don't miss these key deductions!


We've all heard that owning your own home has its benefits. You can paint your walls whatever color you want, you can remodel them whenever you want, and there are NO pet restrictions!


A major perk that we often don't calculate are all of the tax benefits that come along with it as well!

This year we put together this list to make sure you're getting the most out of your home ownership. Make sure to pass this info along to your CPA and let us know if we can help provide any further figures specific to your situation.


Mortgage Interest-You can deduct the interest you pay on your loan for up to $750,000 of mortgage debt. ($375,000 if married filing separately) This will show up on form 1098.


1031 Exchange- You can sell a property held for business or investment purposes and swap it for a new one that you purchase for the same purpose, allowing you to defer capital gains tax on the sale.  Proceeds from the sale must be held in escrow by a third party, then used to buy the new property; you cannot receive them, even temporarily. If used correctly, there is no limit on how frequently you can do 1031 exchanges. The rules can apply to a former principal residence under very specific conditions.


Sale of Your Home- If you live in your home for 2 of the last 5 years, you do not have to pay taxes on the first $250,000 of profit ($500,000 if you're married). Extra pro tip: Save receipts for costs associated with maintaining and improving your home. You can add many of these expenses to your home's cost basis to reduce any capital gains taxes when you sell.


Discount Points Paid- If you purchased discount points to get a better interest rate when you bought a house, those fees are tax deductible for the year you purchased.


Property Taxes- Homeowners who itemize their tax returns can deduct property taxes they pay on their main residence and any other real estate they own. This includes property taxes you pay starting from the date you purchase the property. Side note: Tax cuts and jobs Act (TCJA) capped the property tax deduction, along with other state and local taxes, starting with 2018 taxes. The law capped the deduction for state and local taxes, including property taxes, at $10,000 ($5,000 if married filing separately). Previously, there was no limit on the deduction.


Rental Homes-Now we're getting into real savings. Every single expense you spend on your rental home is tax deductible. PLUS you also get to count depreciation. This means, even if your property is net cash flowing your depreciation will likely show a loss which can be a great tax advantage.


Although we have some very trusted sources, it is important to note that we are NOT CPA's so please check further with a professional to see which of these rules apply to you. As always, it is our goal to earn the right to be your Realtors for life, so we hope you found this helpful!