Tax Benefits of Owning A Home

The biggest reason to purchase a home is because you want a place that is yours, without the worry of a landlord raising the rent or asking you to move out.  Tax benefits shouldn’t be the major reason why you decide to become a homeowner, but they are a nice extra benefit that can help reduce your tax liablity.

  • When you sell your primary residence, if you who have owned and lived in the home for at least two out of the last five years, you can exclude a maximum of $250,000 of gain as a single taxpayer and up to $500,000 of gain if you are married filing jointly.
  • If the gain on your principal residence exceeds the allowed exclusion, the balance is taxed at the lower long-term capital gains rate rather than the marginal tax rate you are paying.
  • You can deduct the interest paid on up to $1,000,000 of acquisition debt used to buy, build or improve your first or second home.   You may also deduct the interest on up to $100,000 over acquisition debt that is a recorded lien on your first or second home.
  • IRS allows you to decide each year whether to take the higher of the itemized deductions or the standard deduction.
  • Points paid on new loans for home purchases are considered interest and can be deducted in the year paid. On the other hand, points paid for refinancing a home must be amortized over the life of the mortgage.

For more information, talk to your tax professional and see IRS publication 523 and IRS Publication 936 (I know – it’s not fun to read IRS publications, but it’s good info to know!)