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8 Tax Breaks Every Homeowner Should Know About

8 Tax Breaks Every Homeowner Should Know About

Tax Breaks Every Homeowner Should Know About

Owning a home comes with many benefits, and one of the biggest perks is the potential for tax savings. Understanding the tax breaks available to homeowners can help you save a significant amount of money during tax season. From mortgage interest to energy-efficient upgrades, these deductions and credits can lighten your financial load and maximize your investment.

Tax Breaks Every Homeowner Should Know About
Discover 8 tax breaks for homeowners to save money during tax season. Learn about deductions for mortgage interest, property taxes, and more.

Tax Breaks for Every Homeowner

1. Mortgage Interest Deduction

The mortgage interest deduction is one of the most well-known tax breaks for homeowners. If you’re single or married filing jointly, you can deduct the interest on the first $750,000 of your mortgage debt. For those married and filing separately, the cap is $375,000. If your loan originated before December 16, 2017, the cap increases to $1 million (or $500,000 if married filing separately). This deduction can make a significant difference in your tax bill.

2. Property Tax Deduction

Another common deduction is property taxes. Homeowners can deduct up to $10,000 for state and local taxes, including property taxes. This is particularly helpful for families in states with high property tax rates. However, this deduction is part of the $10,000 cap on state and local tax (SALT) deductions.

3. Home Office Deduction

For those who work from home, the home office deduction can be a substantial tax break. To qualify, your home office must be used exclusively and regularly for business purposes. Self-employed individuals, independent contractors, and gig workers can deduct a portion of their mortgage, utilities, insurance, and maintenance costs. There are two ways to calculate this deduction: the simplified method, which allows $5 per square foot up to 300 square feet, or the regular method based on actual expenses.

4. Residential Energy-Efficient Tax Credits

If you’ve made energy-efficient upgrades to your home, you may qualify for tax credits. Homeowners can receive a credit of up to 30% of the cost of installing solar panels, energy-efficient HVAC systems, or other eligible improvements. According to the IRS, these credits have limits, such as $2,000 annually for qualified heat pumps and water heaters, and $1,200 for certain energy-efficient property costs.

Tax Breaks Every Homeowner Should Know About

5. HOA Fee Deductions for Business Use

While HOA fees are generally not deductible, there are exceptions for homeowners using part of their property for business or as a rental. For example, if you rent out your home or have a designated home office, you can deduct a portion of the HOA fees proportional to the percentage of your home used for these purposes.

6. Medical Home Improvements

Certain home improvements made for medical purposes are eligible for tax deductions. These include modifications such as wheelchair ramps, handrails, or stair lifts that are medically necessary for you, your spouse, or your dependents. The costs must exceed a percentage of your adjusted gross income to qualify.

7. Points Paid on a Mortgage

If you paid mortgage points to lower your interest rate, these costs may be deductible. This tax break is especially beneficial in the first year of homeownership, as prepaid points can add up to significant savings. Ensure you consult a tax professional for accurate calculations.

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8. Capital Gains Exclusion on Home Sales

When selling your primary residence, you can exclude up to $250,000 of capital gains if you’re single and up to $500,000 if you’re married filing jointly. To qualify, you must have lived in the home as your primary residence for at least two of the past five years.

Making the Most of Your Tax Breaks

Understanding these tax breaks is crucial for homeowners looking to maximize their savings. It’s worth noting that many of these deductions are available only if you itemize your deductions instead of taking the standard deduction. For more detailed guidance, consult a tax professional or trusted resources like Realtor.com, which offers comprehensive advice on tax benefits for homeowners.

Tax Breaks Every Homeowner Should Know About

By leveraging these tax breaks, you can significantly reduce your taxable income and keep more money in your pocket. Whether you’re a first-time homeowner or a seasoned property owner, staying informed about these opportunities ensures you’re making the most of your investment.