Wisdom Wealth Strategies Logo

The Sweet Tax Benefits of Home Ownership

Get the latest expert financial tips and advice + access to our free financial checklists.

Ah, home sweet home. When you understand the many tax benefits of home ownership, it’s even sweeter! We have compiled a quick list of common tax savings related to home ownership below.

 

The home gain exclusion.

When you sell an asset for a profit, it creates a taxable event. However, if the asset is your primary residence, you can exclude up to $250,000 ($500,000 if married filing jointly) of these gains. Special rules do apply, but this is a major tax benefit of home ownership.

How to take advantage: You must live in your house for at least 2 of the previous 5 years to qualify for the home gain exclusion. Start planning now if you think you’ll be selling your house in the near future so you can qualify for this tax break.

 

Itemized deductions.

Mortgage interest and property taxes are two deductions you can claim as a homeowner. The interest is deductible on the first $750,000 associated with loans secured by your primary and secondary residences ($1 million for mortgages underwritten prior to 2018), while up to $10,000 of property taxes may be deducted. You may also deduct points paid as an itemized deduction over the life of your mortgage.

How to take advantage: You need to itemize your deductions to take advantage of these tax breaks. Consider bunching your mortgage interest and property taxes with other itemized deductions such as charitable contributions, taxes, and excess medical expenses to exceed the standard deduction for your filing status and make itemizing more advantageous.

 

Free rental income.

You can rent out your home for up to two weeks each year and not claim the income. While you cannot deduct expenses in this scenario, this is a great tax break if your home is located next to a popular landmark or a major event.

How to take advantage: Keep track of how many days you rent out your home so you don’t go over the 14-day limit. If you rent your house for 15 days in a year instead of 14, you’ll owe taxes on all rental income for that year, including the first 14 days.

 

Home office deduction.

If you use a portion of your house exclusively as a home office, you may be able to deduct certain expenses such as mortgage interest, insurance, utilities, and repairs.

How to take advantage: To qualify for the deduction, you generally must use this portion of your house exclusively for business purposes on a regular basis. If non-business activities take place in the area you are claiming, it will be disallowed.

Questions about the particulars of your situation? We are here to help.

Download our Free Financial Planning Worksheets

Join our mailing list to receive your 2024 Tax & Financial Planning Guide, as well as your Net Worth Statement and Spending Plan.