Homeowner Tax Breaks
Favorable tax treatment is a major benefit of homeownership. The tax breaks
offered to homeowners can substantially increase affordability and investment
returns.
Mortgage Interest Is Deductible
Interest from a home mortgage is fully
deductible from income taxes. Since mortgage payments in the early years of a
loan consist primarily of interest, this tax break has long helped buyers afford
new homes. The deduction applies to interest on up to $1,000,000 in loan
proceeds used to purchase or build a primary and/or secondary home.
Home Equity Interest Is Deductible
Interest on a home equity loan of up to
$100,000 is deductible, regardless of the use of the proceeds.
Property Taxes Are Deductible
Property taxes paid to local or state
authorities are deductible from federal income tax returns.
Capital Gains Are Tax-Exempt
Capital gains - the profit made when an
appreciated home is sold - are completely exempt from taxation, subject to
certain limits and conditions. Single filers may exempt total gains of $250,000
and married couples, $500,000. This exemption is subject to a number of
qualifications, but usually applies to any property the taxpayer has lived in
for two of the previous five years.
Increased Basis for Improvements
Money spent on certain home improvements adds
to your cost basis for the house, reducing the amount of any capital gain upon
sale. Be sure to keep all receipts and records from home improvement projects.