Whether you’ve owned your home for a decade or are just starting out, there are benefits to homeownership when it comes to paying taxes. As a real estate brokerage we certainly can’t take the place of your accountant, but we can give you some home-related tips that you may find helpful.
-
Mortgage interest: For new homeowners, most of a monthly payment goes toward interest, not principal. Mortgage interest is tax deductible on your primary residence (check limitations based on your filing status).
-
Points: If you paid points last year to get a better mortgage rate, they could be deductible as interest.
-
Property taxes: Typically a total of $10,000 can be deducted each year for property taxes, state and local taxes combined.
-
Home equity loan interest: If you took out a home equity loan in 2023 and used the funds to buy, build, or substantially improve your home, chances are you can deduct the interest on that loan (always check with an accountant to confirm).
-
Mortgage insurance: Mortgage insurance premiums can be deducted as interest, although the write-off starts to phase out when your income exceeds a set amount.
-
Energy credits: Energy-saving home improvements can equate to tax credits. There’s a separate, larger credit for items like solar panels. Click this link for a list and more detailed information as some of these tax credits changed in 2023.
As a general rule of thumb, it’s important to keep good records of all repairs and improvements to your home, including landscaping. By establishing a higher cost basis for your home, you might reduce the amount of profit that counts as taxable when you go to sell your home in the future.
Not great at keeping receipts? Consider using a designated bank card for all home-related improvements. You should be able to log in to the corresponding bank and download year-end summaries of your expenditures. This is a lot less time consuming than printing and sifting through each monthly statement, especially if you live in your home for an extended period before selling.
For the tax year in which you sell your home, your taxes on the sale are based on the sales price plus any concessions you receive, minus your selling expenses. If the amount you gain from that equation is higher than your adjusted basis, you’ll have a capital gain on the sale. So the higher your adjusted basis, the fewer taxes you’ll pay on the profit from the sale of your home.
If you have an accountant they’ve likely sent you an organizer with last year’s expenses to help get you started. If not, one way to get organized is to take last year’s deductions and start from there. And if you purchased or sold a home in 2023, contact your real estate agent for a copy of your closing statement as you will need to reference the information on this document.
Owning a home comes with enormous benefits, but it also comes with added expenses. Fortunately there are some tax breaks designed specifically for homeowners. It’s crucial that you know which deductions and credits you qualify for in order to maximize those benefits.
Be sure to reach out if you have questions pertaining to homeownership. We do our best to stay well informed and help you when you need it.
Red Oak Realty recommends that you consult with a tax accountant to investigate any of these claims further and how they may pertain to your individual situation.
