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6 tax benefits of owning a home
If you own or are considering owning a home, you can take advantage of many tax benefits. Here are six of the most commonly used homeowner's tax breaks:
Mortgage interest deduction. You can deduct the interest you pay on your monthly mortgage bill when you itemize deductions on your tax return. This can be a huge benefit because typically about 80 percent of your mortgage bill in your first year of home ownership on a 30-year mortgage goes toward interest.
Note: This benefit is capped to apply to $750,000 in indebtedness for new loans taken in 2018 ($1 million for loans taken out in 2017 or earlier).
Property tax deductions. You can deduct up to $10,000 in combined state and local taxes. Called the SALT deduction, this can be used to deduct local property taxes, state taxes, local income taxes and sales taxes.
Closing cost deductions. You can deduct the closing costs of a home purchase in the year you buy it. This includes things like mortgage discount points you pay upfront to lower your interest rate over the life of your loan.
Home improvement tax breaks. If you take out a second mortgage, commonly called a home equity mortgage, and use it to buy, build or substantially improve your home, you can deduct the interest on that loan from your taxes.
Caution: Interest on home equity loans used for any other means (e.g., to pay down credit card debt or to purchase a car) is no longer deductible.
Energy efficiency tax breaks. There are special tax breaks available for renewable energy and energy-efficiency upgrades to your house. The cost to buy and install solar, wind and geothermal equipment to your home can be deducted by 30 percent. Energy-efficient upgrades can be deducted by 100 percent for items such as central air conditioning, furnaces and water heaters, capped at a total of $500.
Capital gains exclusion. You have the ability to exclude up to $250,000 of profits (or $500,000 if you are married) from the sale of your home, as long as it's your primary residence and you've lived there at least two years.
Remember, if you're thinking of buying a home, you may want to make a tax review part of your preparation. Since the tax deductions on mortgage interest and points can be so substantial in the early years of home ownership, they may factor in to how much you can afford.
Luers & Dyer, CPAs, LLP is a full service accounting firm with offices in Julian and San Diego. For more information about our company call (760) 765-0343.
Mailing Address: P.O. Box 1934, Julian, CA 92036
Julian Office: 2902 Washington Street, Julian, CA 92036 (760) 765-0343 (760) 765-0150 Fax
San Diego Office: (By Appointment Only) 3751 37th St., #2, San Diego, CA 92105 (619) 283-7113
Correspondence: P.O. Box 1934, Julian, CA 92036 E-mail: rebecca(at)luersdyercpa.com jan(at)luersdyercpa.com
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