Being a homeowner provides many benefits, but it can also cost a lot of money over time. Fortunately, there are several tax deductions that you can take advantage of to help soften the blow. This quick guide shares four current tax benefits for homeowners.
1. Mortgage Interest Expense Deduction
Those who pay a mortgage can deduct some of the interest they have paid on their tax return. The deduction is for up to $750,000 of the mortgage expense.
However, one thing to keep in mind is that this deduction only qualifies if you are itemizing deductions. This means that you give up the standard deduction, which is:
- $12,400 for single or married people filing independently
- $18,650 for the head of household
- $24,800 for married couples filing jointly
Before you choose to deduct your mortgage interest expense, compare the amount of interest you have paid to your standard deduction. You can choose the best path from there.
2. Property Tax Deduction
Homeowners spend out anywhere from hundreds to thousands per year on property taxes. Fortunately, some of those taxes can be deducted for any of the following types of properties:
- Primary homes
- Vacation homes
- Boats, cars, RVs, and other vehicles
- Co-op apartments
- Even property you own outside the U.S.
Currently, you can deduct up to $5,000 of property, state and local, or sales taxes if you’re single or married filing separately. That doubles to $10,000 if you are married and filing a joint tax return.
3. Home Improvement Loan Interest
Have you gotten any home improvement loans? You might be able to deduct any interest you have paid into the loan. However, you have to meet two major requirements.
First, you must have used your primary residence as collateral on the loan. Also, you must be the borrower. In other words, it must be the home you live in, and your name must be on the loan. If your parents got the loan for you, for example, it will not qualify.
Second, the loan must have made huge improvements to the home that secured the loan. It cannot have been used to improve a vacation home or a rental home you own. Some of the qualifying improvements include:
- Replacing the roof
- Replacing the siding
- Adding insulation
- Adding on a room, porch, patio, or deck
- Having your wiring redone
- Putting in a swimming pool
- Remodeling an entire room or section of the house
You cannot deduct routine maintenance projects or regular repairs. This deduction qualifies for loans up to $750,000 for joint filers or $375,000 for those filing separately.
4. Capital Gains
Selling a home actually makes homeowners subject to capital gains tax. Fortunately, there are exceptions to this rule.
If you are single, the first $250,000 worth of gain is exempt. For married people filing joint on their personal income tax return, the first $500,000 is exempt from taxes.
There are certain rules to this exemption, though. First, the home must be your primary residence. Second, you can only take advantage of this exemption once every two years.
What Can I Do With These Benefits?
After taking advantage of these tax benefits for homeowners, you can use them to reach your financial goals. You can take your family on vacation, pay down your mortgage, pay towards other debt, make more home improvements, or invest. Whatever financial goals you have, you can utilize your tax benefits to propel you towards them.
The tax benefits listed here are just a handful of options, but there are many more for homeowners in 2023. Before you file your taxes, consider consulting a tax professional to help you get the maximum possible refund.