What are the tax benefits for Homeowners?
Benefits of Owning A Home
Your decision to buy a home can carry significant tax benefits. Click on one of the following links to explore how you can save thousands of dollars when owning and/or selling your primary or secondary residence.
Purchasing/Refinancing Your First Home
Buying and ultimately owning your own home can carry tax advantages:
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You can deduct all the interest up to a maximum of $1 million in mortgage debt secured by a first and/or second home. The maximums are halved for married taxpayers filing separately (Note: You cannot use the $1 million deduction if you pay cash for your home and later use it as collateral for an equity loan).
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You can deduct points (1 point = 1% of loan principal) associated with a home purchase mortgage. This may equate to significant tax savings on the 1 – 3 points which are common on home loans.
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If you are taking a loan out for capital improvements on your home, owning the property will allow you to deduct all the interest from your loan. However, the loan may not be used for ordinary improvements.
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Property or real estate taxes are fully deductible from your income.
Please consult a tax professional for more information regarding your specific financial situation.
Purchasing Your Second Home or Vacation Home
Depending on how often you use your alternate home or how often you rent it to others, there is a tax advantage that applies to you:
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Vacation homes used as personal residence property (homes that are rented more than 14 days a year and have personal use of more than 14 days or 10% of the rental days, whichever is greater) can deduct interest up to $1 million of mortgage debt (Note: You can deduct interest up to two personal residence properties. Personal use includes use by family members and anyone else who pays less than market rental rates. Property taxes are deductible no matter the number of homes you own).
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Vacation or second homes that are used rarely by the owner will classify as rental properties if your personal use does not exceed 14 days or 10% of the rental days (whichever is greater) and rent more than 14 days a year. (Note: Interest and property taxes and operating expenses will all be allocated based on the total number of days the house was used).
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For homes that are rented for fewer than 15 days a year and used by the owner for more than 14 days, the same interest and property taxes which are deducted from your primary residence can also be deducted from your vacation/second home.
Your vacation property is fully deductible. This includes a boat or an RV as long as it has sleeping, bathroom and cooking facilities. To enjoy a full tax deduction, make sure to spend at least 14 days of the year (or 10% of days you do not rent it) in your second property.
Selling your Home
Selling your home results in tax benefits as well:
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You can avoid taxes on up to $250,000 (individual) or $500,000 (couples filing jointly).
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As long as the property is your primary residence and you have lived in it for at least 2 of the preceding 5 years, you can qualify for this tax advantage. Tax-free gains are not limited to how many homes you can sell as long as you allow a 2-year interlude between each sale.
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You can exclude taxes when selling parcels of land adjacent to your home as long as it is not for business use.
Please consult a tax professional for more information regarding your specific financial situation.