Buying a home is the single most valuable investment most families make, and homeownership offers tax breaks that make it the foundation for your overall tax planning. The tax law provides numerous incentives to homeownership, including the following:
- Buying, rather than renting, replaces nondeductible rent with deductible mortgage interest.
- Taxpayers can deduct up to $10,000 of combined property and income tax annually.
- Homeowners can exclude up to $250,000 of gain ($500,000 for married couples filing jointly and certain surviving spouses) from taxable income when they sell.
- There is no penalty for an early withdrawal from an IRA for a “first-time” homebuyer for up to $10,000 so long as the proceeds are used for acquisition of a home.
- Self-employed individuals may deduct expenses for a portion of the home used for business. A simplified optional method for claiming a home office deduction is now available.
- Premiums paid or accrued for qualified mortgage insurance in connection with acquisition indebtedness before January 1, 2021 are deductible as home mortgage interest.
- The exclusion from gross income for discharges of qualified principal residence indebtedness before January 1, 2021.
- Energy credits for environmentally friendly and ecologically responsible home-related expenditures placed in service before January 1, 2021.
You may benefit from a close review of these provisions, particularly if you are considering transactions involving your home, including selling, refinancing, or renting. Many homeownership tax benefits also apply to a second home.
Crosslin can assist you with questions on homeownership as it applies to your overall tax plan. Give our tax team a call at (615) 320-5500.
