Are you maximizing all the tax benefits available to you as a homeowner?
Tax breaks for homeowners: Staying up-to-date on the latest tax rules is a smart move. With the recent changes from the Tax Cuts and Jobs Act, you might not be aware of exactly which credits and deductions you can take advantage of. Whether you’re a long-time homeowner or just bought your very first home, it helps to have a refresher. Let’s brush up on some of the key tax perks of homeownership, so you can make the most of your benefits this tax season.*
Deductions and credits are like tax discounts. A deduction reduces your taxable income, whereas a credit reduces the tax you owe, and is generally worth more than a tax deduction. As a result, deductions are more like tax coupons and credits are more like tax gift certificates.1
Mortgage Interest Deduction:
This helps low- to moderate-income people afford homeownership by providing a credit of up to $2,000 on mortgage interest paid in a calendar year. Eligible taxpayers must obtain a Mortgage Credit Certificate (MCC) prior to purchasing their home. The MCC must be issued by a state or local governmental unit or agency under a qualified mortgage credit certificate program.3
Mortgage Discount Points Deduction:
Mortgage Discount Points are something you can purchase to lower your interest rate when you buy your home; one point is typically equal to 1% of the loan amount. If you purchased discount points when you bought your home, you may be able to deduct them on your income tax return. Of course, the IRS has eligibility requirements for deducting points. Talk to your tax advisor to see if you qualify for this deduction.4
Property Tax Deduction:
State and local property taxes that you pay for any real estate you own are deductible up to $10,000 (or $5,000 if married, filing separately). Keep in mind the deduction limit is applied to your overall property tax payments. This is true even if you own more than one property. For instance, if you own two or more properties and your total combined property tax bill was $15,000, you will only be allowed to deduct $10,000 total from your income taxes.2
Capital Gains Tax Exemption:
If you sell certain types of assets for more than their original cost, you may have a capital gain. Capital gains are normally taxable. However, an exception is made if you sell your home for more than the amount you paid (in other words, if you make a profit). The capital gains you get from selling your home are tax-free up to $250,000 (or $500,000 if married filing jointly). The caveat is that you must have lived in that property as your primary residence for two out of the past five years. This tax perk helps you keep more of the equity that you worked to build over the years — yet another example of just how powerful equity can be for growing your wealth.5
Energy Tax Credits:
Interested in making your home more energy-efficient? The federal government offers the residential energy efficient property credit for installing alternative-energy equipment in your primary or secondary residence. This includes qualified solar electricity and water heating, small wind energy, fuel cell, and geothermal heat pump systems. The credit is up to 30% of the cost for purchasing and installing these systems in 2018.6
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*This information is not intended to be a comprehensive or exhaustive list, nor is it intended to be a substitute for expert advice from a professional tax advisor or preparer, or the Internal Revenue Service (IRS). Sample Mortgage X and its loan officers are not tax preparers or advisors. Consult a tax professional for more information.
 IRS.gov, “Credits and Deductions for Individuals,” November 2018.
 IRS Publication 5307, “Tax Reform Basics for Individuals and Families,” Tax Year 2018.
 IRS Form 8396, “Mortgage Interest Credit,” 2018.
 IRS Topic Number 504 – Home Mortgage Points, January 2018.
 IRS Topic Number 701 – Sale of Your Home, February 2018.
 IRS 2018 Instructions for Form 5695