Homeownership has many important benefits for millions of Americans across the country — including creating a sense of community, building wealth and providing financial security.
And, at tax time, home owners can take advantage of several sources of tax savings, including:
- Deductions for mortgage interest
- Deductions for real estate taxes
- The capital gains exclusion for the sale of a principal residence
Mortgage Interest Deduction
Home owners who itemize their federal income tax deductions can deduct 100 percent of their mortgage interest payments on a first or second home for up to $1 million of mortgage debt. The Mortgage Interest Statement Form 1098, which home owners receive from their lenders, shows the total amount of home mortgage interest paid during the year.
Homeowners also can deduct the interest paid on up to $100,000 of home equity loans.
For most home owners, this means they can deduct all of the mortgage interest they've paid on their home each year.
Real Estate Tax Deduction
Home owners are able to deduct the state and local real estate taxes they pay each year on an owner-occupied home.
Capital Gains Exclusion
When it is time to sell a home, in many cases home owners don’t have to pay capital gains tax on the profit from the sale. Under present law, married couples who have owned and occupied their principal residence for at least two of the past five years do not have to pay any taxes on the first $500,000 in profits from the sale of their home. Single filers earn up to $250,000 tax free.
Additional Tax Savings
Another deduction home owners may be able to take is for mortgage insurance premiums. Generally, people who purchase a home without putting 20 percent down have to buy mortgage insurance, and those premiums can also be deducted from taxable income.
Even home owners who don’t use the home as their principal residence and rent it out may be able enjoy some tax benefits, including interest and depreciation deductions.