There are many tax benefits built into homeownership. Here is a review of the most common. It may be worth a quick check to ensure you are maximizing your homeownership tax benefits.
Common deductions
Interest deductibility. Mortgage interest is one of the few allowed deductible interest expenses. It is limited to the first $750,000 in loans secured by your primary residence ($1 million for mortgages underwritten before 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).
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.
Property taxes. Your property taxes are also allowed as an itemized deduction. Current tax laws limit this deduction and 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 lake home for two weeks to help reduce their home’s cost away from home.
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 homeownership is receiving tax-free gains. Generally, when you sell a 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 homeownership.
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.