The Four Tax Benefits that Homeowners Need to Know

It's that time of year again - tax season! If you're an accountant, you're probably buried beneath a never-ending pile of work. And if you're not an accountant, you're probably procrastinating on getting started or waiting on your tax documents to come in mail. Either way, taxes can be frustrating and confusing for the average U.S. taxpayer.

As a former tax accountant, I prepared many individual tax returns and learned about how owning property can help shield you from tax liability. So for this week, I decided to list the four tax benefits that homeowners need to know:

  1. Capital Gains Exclusion: For a primary residence, homeowners are allowed to exclude up to $250,000 or $500,000 (if married filing jointly) of gain from being taxed. This is a great way for homeowners to use their appreciating equity to fund their next real estate purchase and avoid paying taxes on that gain.

  2. Mortgage Interest: You may be able to deduct any mortgage interest paid towards a Qualified Home as well. For some people, you may write off the interest paid on two properties. Be advised that there are some limitations on mortgages with large principal balances or on properties with rental activities.

  3. Mortgage Insurance Premiums: This applies to homeowners who have purchased Veterans Administration (VA), Federal Housing Administration (FHA), or other private mortgage insurance (PMI) policies. If you purchased any of the above policies after January 1st, 2007, you may be able to deduct those premiums as well.

  4. State Property Taxes: There are additional deductions you may take based on your state property taxes paid. Unfortunately for condominium owners, this does not include HOA fees.

Now that we've covered a few ways you can reduce your taxable income, here are a few expenses that you can't deduct:

  • Insurance (other than mortgage insurance premiums), including fire and comprehensive coverage, and title insurance
  • HOA fees
  • Mello Roos taxes
  • Utilities (e.g. gas, electricity, or water)
  • Forfeited deposits, down payments, or earnest money

Disclaimer: This advice should not be relied upon since every taxpayer's situation is unique! If you have tax compliance questions or concerns, you should consult with an actively practicing CPA.