8 Federal Income Tax Breaks That Can Save You Money As a Homeowner
Thanks to high prices, steep interest rates and low inventory, homeownership has become a distant possibility for millions of Americans. According to the National Association of Home Builders (NAHB), 64.8 million households (48.9%) in the U.S. are unable to afford a $250,000 home.
See More: How To Avoid Paying Taxes When You Sell Your House
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This is bad news when considering that, according to the Federal Reserve Bank of St. Louis, the average home sales price as of Q2 2023 is $416,100.
But with the bad news, there is some good news, too. There are nine federal income tax breaks that could make the cost of owning a home more affordable. Let’s have a look.
Real Estate Property Tax Deduction
Did you know you can deduct your property home property taxes? Well, up to a certain point. The IRS states that deductible personal property taxes are those based only on the value of personal property. The tax must be charged to you on a yearly basis, even if it’s collected more than once a year or less than once a year. You have to cap deductions at $10,000.
Mortgage Interest Deduction
Mortgage interest rates are through the roof, but this can actually, weirdly, be beneficial when filing your taxes because you can deduct the mortgage interest rate payments up to $1 million. The trick is, you have to make itemized deductions, as opposed to taking a standard deduction.
Check Out: A Look at Tax Filing Options and Costs
Home Equity Loan Interest Deduction
You can also deduct your home equity loan interest from your taxes, if itemizing deductions.
The Residential Clean Energy Credit
According to the IRS, the Residential Clean Energy Credit equals 30% of the costs of new, qualified clean energy property for your home installed at any point between 2022 through 2033. You can take this credit if you’ve invested in any of the following:
Battery storage technology
Fuel cells
Geothermal heat pumps
Solar electric panels
Solar water heaters
Wind turbines
Home Improvements: Related Medical Expenses Deduction
If you need to put in a special device or make a renovation for a medical need for yourself, your spouse or a dependent — and they increase the value of your property — you can partially deduct them as a medical expense.
Canceled Mortgage Debt Exclusion
If you opt for a debt forgiveness plan, you’ll typically have to pay the tax on any canceled debt. But thanks to the Mortgage Forgiveness Debt Relief Act of 2007, taxpayers may be able to exclude income from the discharge of debt on their principal residence. Extended through 2025, this act may enable you to not pay taxes on up to $750,000 in forgiven debt.
Capital Gain Exclusions for Homeowners When Selling
If you already own your home and are embarking on selling it, the IRS qualifies you as selling a capital gain (aka, the profit you make from the sale). You may be able exclude up to $250,000 of that capital gain from your income taxes. This means that, effectively, you won’t owe federal income taxes on that up to $250,000.
Net Investment Income Exclusion When Selling
Another savings perk of selling your home is the Net Investment Income Tax (NIIT) exclusion. According to the IRS, the NIIT applies at a rate of 3.8% to certain net investment income of individuals, estates and trusts that have income above the statutory threshold amounts. Gain from the sale of investment real estate (including gain from the sale of a second home that is not a primary residence) are excluded from this tax.
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This article originally appeared on GOBankingRates.com: 8 Federal Income Tax Breaks That Can Save You Money As a Homeowner
