Hi, I’m Bette Hochberger, CPA, CGMA. Owning a home is not only a significant milestone but also a smart financial decision. Beyond the pride of homeownership, there are numerous financial advantages, particularly when it comes to taxes. Understanding the tax benefits of owning a home can help you leverage them to maximize your savings and build long-term wealth. 

In this blog, I will discuss the various ways owning a home can save you money come tax time. Let’s dive in!

Mortgage Interest Deduction

One of the most significant tax benefits of owning a home is the ability to deduct mortgage interest paid throughout the year. For many homeowners, especially in the early years of their mortgage, a substantial portion of their monthly payment goes toward interest. 

The mortgage interest deduction allows homeowners to reduce their taxable income by the amount of interest paid on their mortgage loan, potentially resulting in significant tax savings.

Property Tax Deduction

Another tax benefit of homeownership is the ability to deduct property taxes paid on your primary residence. Property taxes can be a substantial expense for homeowners, especially in areas with high property values. However, the IRS allows homeowners to deduct property taxes on their federal income tax return, providing additional savings come tax time.

Capital Gains Exclusion

When you sell your primary residence, you may be eligible to exclude a portion of the capital gains from your taxable income. The Taxpayer Relief Act of 1997 introduced this provision, which allows individuals to exclude up to $250,000 in capital gains ($500,000 for married couples filing jointly) if certain conditions are met. This exclusion can result in significant tax savings for homeowners who sell their homes at a profit.

Home Office Deduction

If you use a portion of your home regularly and exclusively for business purposes, you may qualify for the home office deduction. Whether you’re self-employed or work remotely for an employer, the home office deduction allows you to deduct a portion of your home-related expenses, such as mortgage interest, property taxes, utilities, and maintenance costs, based on the percentage of your home used for business purposes.

Energy Efficiency Credits

Investing in energy-efficient improvements for your home, such as solar panels, energy-efficient windows, or a high-efficiency heating and cooling system, can not only reduce your energy bills but also make you eligible for valuable tax credits. 

The Residential Renewable Energy Tax Credit and the Nonbusiness Energy Property Credit offer homeowners incentives to make eco-friendly upgrades to their homes, resulting in both environmental and financial benefits.

Owning a home offers numerous tax benefits that can help you save money and build wealth over time. From deducting mortgage interest and property taxes to leveraging capital gains exclusions and home office deductions, homeownership provides opportunities to reduce your tax burden and maximize your financial resources. 

I hope you learned something new today. As always, stay safe, and I will see you next time.