Top Tax Benefits for Homeowners

Saving on taxes is one of the top benefits of owning a home, but many new homeowners aren’t aware of all the ways they could benefit.

Taxes can be pretty tricky, so talk with a tax advisor if you have questions. And it’s important to note that most of these benefits only kick in if you itemize your taxes. In some cases, even with all these benefits, taking the standard deduction may make more sense for you and your family.

Alright, let’s start the count down!

8. Imputed rental income

This benefit is great because you get it automatically, even if you choose a standard deduction. Here’s how it works: If you rent, your property manager has to pay taxes on the income they receive from your payments. That increases rents across the board. Since you never have to pay that tax when you live in a home you own, you get what amounts to a pretty sizeable tax break.

This imputed rental income tax break is a benefit throughout the U.S., but some countries—namely Iceland, the Netherlands, Slovenia, Luxembourg, and Switzerland—tax homeowners as if they're paying themselves rent.

7. Deduct mortgage insurance premiums (or get a tax credit)

If you put down less than 20% on a home, there’s a good chance you’re paying mortgage insurance (MI). Tax laws change year by year, and rules differ depending on when you bought your home. But for 2020, some homeowners paying MI may be in for a deduction, and others could qualify for a tax credit.

6. Deduct your closing costs

In the first year you buy a home, you can deduct some of your closing costs. Ask your loan officer or tax advisor for specifics.

5. Deduct your points

If you paid points during the mortgage process, you may be able to deduct them at tax time. For more information and to see if your new mortgage or refinance could qualify, see this explanation from the IRS.

4. Deduct mortgage interest on home equity debt

If you used funds from a home equity loan to buy, build, or substantially improve your home, you could deduct your interest on up to $100,000 financed. Be aware that repairs don’t qualify (just improvements), and be sure to keep your receipts for several years in case you’re audited.

3. Exclude capital gains when you sell your home

In the U.S., proceeds from investments are taxed as capital gains. Since your home is an investment, proceeds from a sale would usually fall under capital gains rules. For 2020 taxes, however, you don’t have to pay capital gains up to a certain threshold if you sell a home that you have lived in for at least two of the last five years.

2. Deduct mortgage interest

This benefit is one of the most popular advantages of homeownership, and for good reason. For the vast majority of homes, you can deduct mortgage interest paid on total principal.

1. Deduct local property taxes on your income tax

We put this benefit in the No. 1 spot because of how lucrative it can be. As long as you live in the home you have financed, you can deduct the first $10,000 of property taxes paid to your state or local government.

As you can see, owning a home can save you a big chunk of change on taxes each year. And tax savings are only one of the many benefits of homeownership.

If you're looking to buy a first home, ready to move up, or thinking about a refinance on your current mortgage, one of our friendly Loan Officers would love to chat.

Bonus tax tip

Before we go, we want to let you in on one more quick tip about free tax help—and we encourage you to pass it on to friends and family who may qualify.

If you make $54,000 or less, have a disability, or speak limited English, you could qualify for the Volunteer Income Tax Assistance program offered by the IRS. It’s free and in-person, and it’s a great way to make sure you’re saving as much as possible on that big bill from Uncle Sam.

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