7 Homeowner Tax Breaks That Can Help You Save Some Money
Thanks to high prices, steep interest rates and low inventory, homeownership has become a distant possibility for millions of Americans.
But with the bad news, there is some good news, too. There are federal income tax breaks that could make the cost of owning a home more affordable. Let’s have a look.
Good Question: Should Married People File Taxes Jointly or Separately?
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Real Estate Property Tax Deduction
Did you know you can deduct your property home property taxes? Well, up to a certain point. The IRS states that deductible personal property taxes are those based only on the value of personal property. The tax must be charged to you on a yearly basis, even if it’s collected more than once a year or less than once a year. Deductions are capped at $40,000 for people with incomes under $500,000.
Mortgage Interest Deduction
Mortgage interest rates are through the roof, but this can actually, weirdly, be beneficial when filing your taxes because you can deduct the mortgage interest rate payments up to $750,000. The trick: You have to make itemized deductions, as opposed to taking a standard deduction.
Home Equity Loan Interest Deduction
You can also deduct your home equity loan interest from your taxes, if itemizing deductions.
The Residential Clean Energy Credit
According to the IRS, the Residential Clean Energy Credit equals 30% of the costs of new, qualified clean energy property for your home installed at any point between 2022 through 2033. You can take this credit if you’ve invested in any of the following:
Battery storage technology
Fuel cells
Geothermal heat pumps
Solar electric panels
Solar water heaters
Wind turbines
Home Improvements: Related Medical Expenses Deduction
If you need to put in a special device or make a renovation for a medical need for yourself, your spouse or a dependent — and they increase the value of your property — you can partially deduct them as a medical expense.
Capital Gain Exclusions for Homeowners When Selling
If you already own your home and are embarking on selling it, the IRS qualifies you as selling a capital gain (aka, the profit you make from the sale). You may be able exclude up to $250,000 of that capital gain from your income taxes. This means that, effectively, you won’t owe federal income taxes on that up to $250,000.
Net Investment Income Exclusion When Selling
Another savings perk of selling your home is the Net Investment Income Tax (NIIT) exclusion. According to the IRS, the NIIT applies at a rate of 3.8% to certain net investment income of individuals, estates and trusts that have income above the statutory threshold amounts. Gain from the sale of investment real estate (including gain from the sale of a second home that is not a primary residence) are excluded from this tax.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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