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Quick Guide
to Homeowner Tax Benefits
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There are many reasons to purchase your own home, both personal and
financial. Personal motivations vary for each individual,
but the tax benefits of ownership are a major factor for
almost every purchaser. Though tax laws are always subject
to change, homeowners have generally enjoyed favorable tax
treatment and continue to do so.
These tax breaks significantly affect affordability and can help
homeowners build equity as they move up to larger, more
expensive homes.
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Deductibility of Mortgage Interest
Interest on your home mortgage is fully deductible from your
tax returns. Since mortgage payments in the early years of a
loan consist predominately of interest, this tax break has
long helped buyers afford their new homes. The deduction is
allowable on up to $1,000,000 in loan proceeds used to
purchase a primary and/or second home.
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Deductibility of Home Equity Loan Interest
You can also deduct interest on a home equity loan of up to
$100,000 regardless of the use of the money. This is one of
the few remaining tax breaks for funds that are borrowed for
non-housing related personal uses and is one reason many
people choose to pay off high interest credit cards with
home equity loan proceeds.
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Deductibility of Property Tax
You can deduct any local or state property taxes paid on
your home from your Federal tax returns.
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Capital Gains Exclusion
Capital gains on the sale of a house is often exempt from
capital gains tax, up to a maximum profit of $250,000 for
single filers and $500,000 for married filers. This
exemption may be used as frequently as every two years and
applies to any property the taxpayer has lived in for two of
the previous five years. Homeowners have used this exemption
(and its predecessors) for many years to build up equity as
they move up to larger homes.
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Increased Basis for Improvements
Money spent on certain home improvements adds to your cost
basis for the house, reducing the amount of any capital gain
when you sell. Be sure to keep all receipts and records from
home improvement projects.
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The tax treatment of homeownership has long been one of the
primary financial motivations for purchasing a house - and
one of the main factors increasing affordability. Of course,
as with all tax matters, you should always check with a
professional if you have any questions - particularly if you
are subject to the AMT (Alternative Minimum Tax), which can
affect the status of some deductions. You can also review
http://www.irs.gov to get any answers that you need.
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