Exploring the Tax Advantages of Homeownership

Entering the realm of homeownership is an exciting milestone filled with the freedom to customize your environment to your liking. However, this comes coupled with the task of understanding the financial aspects, including the tax benefits that come with owning a home. The team at CrossCountry Mortgage is ready to guide you through this journey.

In the labyrinth of tax deductions and benefits, it is essential to understand the nuances between standard deductions and itemized deductions, along with the various homeowners' tax deductions that may be available to you. Here, we unpack the complexities to help you leverage the tax benefits of homeownership.

Understanding Homeowner Tax Deductions: A Primer

Tax deductions function to decrease your taxable income, in turn reducing the total sum you owe in taxes. By enabling the deduction of specific expenses from your income, these deductions come in two primary forms: standard and itemized.

Standard deductions represent the most common choice, offering a fixed amount that the federal tax system allows you to deduct. This route is advantageous as it requires no evidence of expenses. Alternatively, itemized deductions allow for a more tailored approach, enabling you to select individual tax deductions over a fixed amount.

While itemized deductions demand more paperwork, they could potentially return more money based on your financial situation. It's recommended to consult a tax professional before making any official decisions, to gain insight into the most beneficial homeowner tax deductions available for your particular situation.

Seven Crucial Homeowner Tax Deductions

Although itemizing taxes may seem daunting, it's designed to be advantageous rather than cumbersome, promoting homeownership. Here are seven significant tax deductions that can potentially recoup your expenses:

Deducting Property Taxes and Some Local Taxes Did you know that you can deduct up to $10,000 annually from your combined payments for property taxes, state income tax, or state and local sales tax? Remember that this claim should coincide with the year of tax payment. If you pay property taxes into an escrow account in installments, only taxes paid from this account can be deducted.

Deducting Mortgage Points During your mortgage application with CrossCountry Mortgage, you might choose to pay additional fees or "points" to reduce your rate. These points, equivalent to one percent of the total loan amount, are considered as pre-paid interest and are deductible accordingly.

Deducting Private Mortgage Insurance If you paid less than 20% of your home's purchase price, you might have incurred mortgage insurance costs. Many homeowners are unaware that it is possible to deduct these costs, although the eligibility criteria have fluctuated significantly over the years.

Deducting Eco-Friendly Home Upgrades Taking steps to make your home more energy-efficient, such as installing solar panels or upgrading insulation, can provide you with tax benefits. However, common upgrades like installing new water heaters or outside doors are no longer eligible for deduction.

Deducting Capital Gains When Selling Your House Upon selling your home, if you make a profit (capital gain), you may qualify to exclude up to $250,000 ($500,000 for joint filing) of that gain from your income, subject to certain conditions.

Deducting Home Office Costs For self-employed individuals, the home office deduction allows the deduction of specific home expenses on their tax return, given certain criteria are met.

Deducting Electric Vehicle Charging Equipment Installation of a vehicle recharging station in your property can qualify for a tax credit. The federal tax credit is worth 30% of the cost of qualifying equipment, capped at $1,000.

There are, however, homeowner costs that are not deductible, including HOA fees, home insurance premiums, utility costs, and refinance costs, among others. As such, it's essential to be candid about your finances and consult a local tax professional if needed.

In addition to deductions, there are also tax credits, such as the first-time homebuyer tax credits and mortgage interest credit, which may apply to you if you plan to purchase a home in the coming year.

At CrossCountry Mortgage, we understand that homeownership extends beyond trips to home improvement stores and encompasses new financial responsibilities. Feel free to reach out to our Mortgage Advisors for any questions about the tax benefits of owning a home, or explore our blog for more insights and resources.