Tax Breaks for Homeowners
Congress has been very friendly to homeowners with many tax deductions. Here are the most common:
- Mortgage Interest. You can deduct mortgage interest you use to buy or improve your main or second home. The maximum amount of mortgage debt on which interest is deductible is $750,000 if related to acquisition or improvment of the home(s). Starting in 2018, you can no longer deduct interest on home equity debt not used to acquire of improve the home(s).
- Property Taxes. Property taxes you pay on your homes or even vacant land are deductible. If you are subject to the Alternative Minimum Tax (AMT), the deduction may be limited or eliminated. Beginning in 2018, the maximum itemized deduction for taxes, including income and property taxes is now $10,000.
- Tax Free Sale of Residence. If you have owned and lived in your primary residence for two of the five years prior to selling it, you can exclude from taxes up to $250,000 ($500,000 if married filing a joint return) of gain on the sale.
- Points. Points are upfront costs paid when you obtain a mortgage loan. If they are paid in connection with your purchase of a primary residence, you can deduct them in the year paid. If paid in connection with a refinancing, points are deducted over the life of the loan.
- Rental Loss Deductions. If you own a property that you rent to others and actively participate in the management, you can deduct up to $25,000 of rental losses from your other income. The $25,000 will start to phase out as your income exceeds $100,000 and phases out completely when it reaches $150,000.
- Home Office Deduction. You can deduct the costs of a home office that you use regularly and exclusively for business. The deduction includes mortgage interest, property taxes, utilities, insurance, and depreciation attributable to the office space. Rules for deducting are, naturally, quite complex.
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