Your home. It’s your safe place and your sanctuary. Happily, tax benefits are also built into home ownership. Here is a review of the most common home ownership tax benefits.
Interest deductibility. Mortgage interest is one of the few deductible interest expenses. It is limited to the first $750,000 dollars in loans secured by your primary residence ($1 million for mortgages underwritten prior to 2018). You may deduct points paid as an itemized deduction over the life of your mortgage.
Bonus: You can also deduct interest on a second home.
Home office. If you have a qualified home office, it may create a deductible expense. There is a safe harbor home office simplified calculation that makes it easy to calculate this tax deduction, but beware. You shouldn’t claim a home office if you are using the space for other things, like a toy room or a remote classroom. It must be dedicated office space.
Property taxes. Your property taxes are allowed as an itemized deduction. Current tax laws limit this deduction, lumped in with other taxes, to $10,000 whether you are married or single.
Free rental income. You can rent out your home for up to two weeks and not claim the income. This is a great tax break if your home is located next to a popular landmark or a major event. Many taxpayers rent out their second home for two weeks each year to help reduce the cost of their home away from home.
Home mortgage insurance. Premiums paid for home mortgage insurance are deductible through 2020. While this tax deduction is not a permanent part of the tax code, it is often extended from year to year by Congressional action.
One more home-ownership tax benefit worth mentioning: The capital gain exclusion. Perhaps the best tax benefit of home ownership is receiving tax-free gains. Generally, when you sell property for a profit it creates a taxable event. However, if the property is your primary residence you can omit up to $250,000 ($500,000 married filing jointly) of these gains. Special rules apply, but this is a major tax benefit of home ownership.
Andrea L. Blackwelder, CFP®, ChFC, CDFA® and Joseph D. Clemens, CFP®, EA are the founders and partners of Wisdom Wealth Strategies. Their shared passion is simple: to bring financial empowerment, understanding, and peace-of mind to people who wish to improve their financial future, build wealth for their families, and achieve financial independence. Click here to find out more about how you can work with the Denver Financial Advisors at Wisdom Wealth Strategies.