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7 Homeowner Tax Breaks


Owning a home has long been a great way to save on your taxes. That’s still true.

A beautiful white bungalow

Take a look at the following ways that owning a home can still give you a break on your taxes.

Deductions for mortgage interest and property taxes

This is the big one. You can generally deduct your mortgage interest on loans up to $1,000,000 that you used to buy or build your home (up to $500,000 if you’re married and filing separately).

You can also deduct home equity interest on loans up to $100,000 (up to $50,000 if you’re married and filing separately).

You can deduct the property taxes you pay on your home or on any other real estate you own.

Deductions for points

When you buy or refinance your home, you may pay “points,” a percentage of the loan as an upfront fee. You generally can get a lower interest rate on your loan if you pay higher points.

If you pay the points when you buy the home, you generally deduct the points in the year you pay them. If you pay them when you refinance, you deduct them over the course of the loan.

Mortgage interest credit

If you receive a qualified Mortgage Credit Certificate (MCC) from a state or local governmental unit or agency under a qualified credit certificate program, the mortgage interest credit can directly reduce your tax liability.

You don’t need to itemize deductions to benefit from this tax break.

Home office deduction

If you work at home as an employee, or if you are self-employed, you may be able to take a home office deduction. This includes a depreciation deduction on the portion of your home you use for business.

Energy credits

This credit has been extended through 2016. You can still get an energy efficiency tax credit if you buy qualifying energy-efficient products such as windows and doors, biomass stoves, insulation before the end of the year.

The credit is 10% of the cost of your qualified energy efficiency improvements installed during 2013, plus any residential energy property costs. Your total credit for all years after 2005 cannot be more than $500.

Tax-free gain when you sell

In most cases, when you sell your home at a gain, you don’t have to pay tax on any of the gain. You can have up to $250,000 in gain before you pay any capital gains tax ($500,000 if you are married filing jointly).

Typically, you must have lived in the house and owned it for at least two of the last five years to avoid paying the capital gains.

If you lived in the house for less than two years but had to move because of a job change, health reasons, or other unforeseen reasons, you may still qualify. However, the maximum amount of tax-free gain will be reduced.

If you didn’t live in the house the entire time you owned it, for example if you used the home as a rental and then converted it to your principal residence, you may owe tax on some of the gain.

Private mortgage insurance deduction

If you put less than 20% down when you bought your home, you may have to pay private mortgage insurance. These premiums are still deductible for 2013.

Were tax breaks a factor that you considered when you bought your home?

Photo credit: Photo Dean via photopin cc

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