Your Home, A Bundle of Tax Benefits
January 19, 2021
Common Deductions
1. Interest Deductibility
Mortgage interest is one of the few allowed 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 also deduct points paid as an itemized deduction over the life of your mortgage.
Bonus: You can also deduct interest on a second home (cabin).
2. Home Office
If you have a qualified home office, it also creates a deductible expense. There is also a safe harbor home office simplified calculation that makes it easy to get this tax deduction.
3. Property Taxes
Your property taxes are also allowed as an itemized deduction. Current tax laws limit this deduction along with other taxes to $10,000 whether you are married or single.
4. 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 lake home for two weeks to help reduce the cost of their home away from home.
5. Home Mortgage Insurance
Premiums paid for home mortgage insurance are also 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.
More Home Benefits
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.
Better than Rent
Since the housing bust of 2008, many would be homeowners are reluctant to exit their rental housing because of the perceived risk involved in owning a home. However, with the recovery of the housing market coupled with lower interest rates, now might be the right time to realize the tax benefits of owning your own dream home.