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Tax Benefits of Owning a Home

Top 5 Credits & Deductions!

Owning a home is a great investment not just for building wealth, but also for the many tax benefits that come along with it. Whether you’re a first-time homeowner or a seasoned pro, it’s always worth reviewing the financial perks of home ownership to make sure you’re taking full advantage of the savings. To help you navigate this tax season, our team here at Southern Trust Mortgage has compiled five of the most notable tax benefits of owning a home.

Top 5 Tax Credits & Deductions for Homeowners

1. Mortgage Interest Deduction

One of the biggest tax benefits of home ownership is the mortgage interest deduction. Homeowners can deduct the interest paid on their mortgage each year, up to a certain limit. For tax years 2018 through 2025, you can deduct interest paid on up to $750,000 of mortgage debt (or $375,000 if married filing separately).

You pay more mortgage interest in the earlier years of your mortgage than in the later years. As a result, any homeowner tax benefits you see from itemizing may gradually decline (or they might not if your property taxes go up every year), and the shorter your mortgage, the faster this will happen.

Even so, paying less money in the first place is always better than getting a small percentage of that money back as a homeowner tax deduction!

2. Property Tax Deduction

Another major tax benefit of home ownership is the property tax deduction. Property taxes are a significant expense for many homeowners, and the good news is that you can deduct the amount you pay each year on your federal tax return. To claim this deduction, simply itemize your deductions on Schedule A of your Form 1040.

Keep in mind that if you reside in a state with high property taxes and/or high-income taxes, you may not be able to deduct everything you pay.

3. Capital Gains Exclusion

When you sell your home, you may be eligible to exclude a portion of the capital gains from the sale from your taxable income. The term “capital gain” in this case, refers to the increase in the value of a home when it is sold.

If you’ve lived in the home for at least two of the five years prior to the sale, you can exclude up to $250,000 of capital gains ($500,000 if married filing jointly) from your taxable income. This exclusion can provide a significant tax break for many homeowners.

4. Energy-Efficient Home Improvement Tax Credit

If you needed another reason to go green, here it is! Last year, the federal government signed the Inflation Reduction Act into law, providing tax credits and rebates to certain qualified homeowners who install approved energy-efficient additions to their homes.

These approved additions could include:

  • Upgrades on electric panels to handle EV charging and other new electrical devices
  • Highly efficient central air conditioner units
  • Energy-efficient insulation
  • Energy-efficient doors & windows
  • Water heaters, furnaces, and water boilers that run on natural gas, propane, or oil
  • Heat pumps & wood burning stoves
  • Adding solar panels or subscribing to a solar community project
  • And more!

If you’re thinking about adding one of these green improvements to your home through a refinance, speak with one of our loan officers today to discuss your options.

5. Home Office Deduction

If you use a portion of your home as a dedicated workspace, you may qualify for a home office deduction when filing your taxes! To qualify, the space must be used exclusively for work-related activities, and it must be your principal place of business.

What types of home expenses can you claim with the home office deduction? Here are the most common:

  • Real estate taxes
  • Home mortgage interest
  • Mortgage insurance premiums
  • Depreciation
  • Insurance
  • Repairs
  • Security system
  • Utilities

Keep in mind that this tax break has quite a few rules that you must follow carefully in order to claim it legitimately. One of these is that you can’t double-dip by claiming the same deductions on both Schedule A and for your home office. Any good tax program will make these adjustments automatically, but it’s always smart to keep track of them yourself to ensure you’re not overclaiming.

Final Notes

We hope that by reading this article, you understand that owning a home can provide a wealth of tax benefits, from deductions for mortgage interest and property taxes to exclusions for capital gains and energy-efficient home improvements. By taking advantage of these benefits, you can significantly reduce your tax liability each year, making your home an even more valuable investment. Whether you’re a first-time home buyer or a seasoned homeowner, it’s always a good idea to review your tax situation and explore ways to save.

Are you in the market for a new home this spring? Connect with one of our skilled Southern Trust Loan Officers today!

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