Your Home is a Tax Deduction
We got a lot of feedback from last month’s blog about the tax savings homeowners enjoy when they sell their residences. Since we’re in the middle of tax preparation season, we thought we’d share an overview of the tax benefits of buying, owning & selling your home. Many of the following ideas are only available if you itemize (vs. taking the Standard Deduction), there may be other deductions besides those listed below, and these are obviously general rules–talk to your tax preparer about your specific circumstances.
Buying. Prepaid interest and mortgage points paid to reduce your mortgage interest rate are usually deductible. Ask your Realtor for a copy of the Settlement Sheet you received at closing and pass it along to your tax specialist.
Owning. Interest on your loan and property taxes make up the biggest part of your monthly mortgage payment and they are deductible. There are limits to what can be deducted on both and be prepared to show proof of payment if you are audited. Private mortgage insurance (PMI) is also partially deductible this year–it’s important to talk to your tax advisor if you claim this deduction.
If you worked from home last year, you may be able to deduct home office expenses. But qualifying rules can be complex and you may have to ‘repay’ deductions you take for a home office when you eventually sell.
Selling. The largest and most obvious tax benefit when you sell is the $500.000 (filing as a married couple)/$250,000 (filing as a single person) tax credit on the profit of the sale. Note that ‘profit’ is based on 1) what you paid to buy your home, plus 2) any major improvements you paid for, less 3) many of the fees–Including real estate commissions–you paid at closing. Also note that you must have used the property as your primary residence for 2 of the last 5 years to qualify. Again, ask your Realtor for a copy of the Settlement Sheet you received at closing and pass it along to your tax preparer.
Uncle Sam recognizes that broad ownership of property is key to a society’s stability and has established tax benefits to encourage it. Your tax professional can advise you about specifics