Homeownership is good for you. It helps you put down roots in a community, provides a sense of stability, is an excellent investment, and can even help you save on your taxes. Let’s explore how owning a home can mean more cash in your pocket at tax time.
Mortgage interest payments are generally tax-deductible on home loans up to $750,000.* This applies to first mortgages, second mortgages, and home equity loans and lines of credit, as long as the funds were used to buy, build, or substantially improve your home.
The private mortgage insurance deduction was set to expire, but the IRS extended it through tax year 2020.
Mortgage discount points may be deductible under certain circumstances. A point costs 1% of your loan amount, and purchasing points at closing will lower your interest rate.
Property taxes paid to state and local government entities are deductible up to $10,000.
Capital gains taxes, where you pay tax on the amount of money you make when you sell an asset, may be waived up to $250,000 (or $500,000 if married filing jointly). For example, if you purchase your home for $300,000 and sell it for $575,000, you may only need to pay taxes on $25,000 of the profit, rather than the full $275,000.
The IRS postponed the 2020 tax filing deadline to May 17, 2021 for most states.** Keep in mind, the change only applies to federal taxes, so check with your state tax authority to confirm when those taxes are due. Learn more about the federal extension here.
*For mortgages taken out after December 15, 2017.
**The IRS is providing relief for victims of the February winter storms in Texas, Oklahoma, and Louisiana. These states have until June 15, 2021 to file.
Note that exceptions, limitations, and restrictions may apply to any of these scenarios. We are not tax preparers or advisors, nor financial consultants. Consult your tax advisor or financial advisor for more information.
