It is tax season! If you are a homeowner, congratulations! There are plenty of reasons to be excited about homeownership during tax season because you could save hundreds or thousands of dollars on your taxes through a number of deductions. A deduction reduces your stated income, thus lowering the amount you owe in tax. In order to qualify for the below, first make sure that the items you declare separately (itemize) equal more than the standard deduction. For 2022 returns, the standard deduction for filing single is $12,950 and married filing jointly is $25,900. Consult the IRS 1040 Schedule A for details.
Do your deductions equal more than the standard deduction? If so, it pays to itemize!
Deduct the interest that is paid on up to $750,000 mortgage debt whether filing as a single filer or a married couple (up to $1 million in debt for homes purchased before 12/16/2017).
Home Equity Loan Interest
If the home equity loan funds were used for a home improvement that substantially improved your property, you can deduct the interest paid last year.
If you paid discount points to lower your interest rate on a mortgage, these are deductible too. These may either be deducted all at once or over the life of the loan. Review the requirements for either.
You can deduct up to $10,000 of your property taxes paid; $5,000 if married filing separately.
Home Improvements that are Medically-Necessary
Are you making home improvements that allow you to age-in-place or are otherwise medically-necessary? If those expenses exceed 7.5% of your adjusted gross income, they can be deducted.
Home Office Deduction
If you run your business out of your home, you can deduct a proportion of certain expenses such as mortgage or rent, utilities, and repairs and maintenance.
Keep some of the profits of your home sale without paying tax! If you used the home you sold as your primary residence for two of the last five years, you can keep some profits tax-free. If you qualify, married couples filing jointly can keep up to $500,000 capital gains tax-free. As a single filer or married couple filing separately, each homeowner can keep up to $250,000 of capital gains without having to pay taxes on that income. There are many additional details to review if you have passed those thresholds. I recommend talking with your accountant to learn more.
Although it means more IRS paperwork, being able to itemize your taxes and potentially reduce your tax burden is a homeownership benefit worth exploring!