Homeowners have several opportunities to reduce their tax burden through various deductions and credits. Below is a short and sweet list to draw further inquiry.
1: One of the most significant is the mortgage interest deduction, allowing homeowners to deduct interest paid on up to $750,000 of mortgage debt for a primary or secondary residence. For mortgages originated before December 15, 2017, this limit is $1 million.
2: Property taxes also offer a deduction, though it's capped at $10,000 annually for state and local taxes.
3: Interest on home equity loans or lines of credit (HELOCs) can be deductible, but only if the funds are used to buy, build, or substantially improve the home securing the loan, falling under the same $750,000 mortgage debt limit.
4: Mortgage points paid to reduce interest rates or cover closing costs are also deductible; for a primary residence, they can be deducted in the year paid, while for a second home or refinance, they must be amortized over the loan's life.
5: Certain home improvements made for medical care, such as wheelchair ramps, can be deductible if they exceed 7.5% of adjusted gross income and the deduction is for the amount exceeding the increase in the home's value.
6: Self employed individuals may qualify for a home office deduction if a space is used exclusively and regularly for business, either through a simplified method with a $1500 cap ($5 per square foot, up to 300 sq ft) or by deducting actual expenses.
7: Tax credits are available for energy efficient home improvements, such as solar panels or geothermal heat pumps, with the Residential Clean Energy Credit offering 30% of costs for systems installed between 2022 and 2032.
8: Finally, when selling a primary residence, individuals can exclude up to $250,000 (single) or $500,000 (married filing jointly) of capital gains, provided they meet specific ownership and residency requirements.
