Your home is a bundle of tax benefits
Many tax benefits come with owning your home. Here is a review of the most common.
Tax benefits of your home
The home gain exclusion. When you sell an asset for a profit, it creates a taxable event. You can exclude up to $250,000 of these gains if the asset is your primary residence. If you are married and filing jointly, you can exclude up to $500,000. Special rules apply, but this is a major tax benefit of home ownership. You must live in your house for at least two of the previous five years to qualify. Start planning if you think you’ll sell your house to qualify for this tax break.
Itemized deductions. Mortgage interest and property taxes are two deductions you can claim as a homeowner. The interest is deductible on the first $750,000 associated with loans secured by your primary and secondary residences ($1 million for mortgages underwritten before 2018). However, up to $10,000 of property taxes may be deducted. You may also deduct points paid as an itemized deduction over the life of your mortgage. You need to itemize your deductions to take advantage of these tax breaks. Consider bunching your mortgage interest and property taxes with other itemized deductions to try and exceed the standard deduction for your filing status. Some examples you can look into would be charitable contributions, taxes, and excess medical expenses.
Free rental income. You can rent out your home for up to two weeks and not claim the income. While you cannot deduct expenses in this scenario, this is a great tax break if your home is next to a popular landmark or a major event. Keep track of how many days you rent out your home so you don’t exceed the 14-day limit. If you rent your house for 15 days over a given year, you’ll owe taxes on all rental income for that year, including the first 14 days.
Home office deduction. If you use a portion of your house exclusively as a home office, you may be able to deduct certain expenses. These expenses may be from mortgage interest, insurance, utilities, and repairs. To qualify for the deduction, you must regularly use this portion of your house exclusively for business purposes. So, be sure to understand the limitations of this deduction.
Maximize your savings
Your house is a great place to control the amount of tax you owe, but only if you know the rules and can apply these rules to your situation. Use this information as a starting point to see if there are ways to leverage your home’s tax benefits. As always, please contact our RRBB advisors with any questions or concerns regarding your tax situation.
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