What Are Some Of The Tax Benefits Of Homeownership?

Homeownership can carry more happiness with it than simply owning the home of your dreams. You can get some tax breaks in the process, too. The main tax benefit of owning a house is that the imputed rental income homeowners receive is not taxed. Although that income is not taxed, homeowners still may deduct mortgage interest and property tax payments, plus other expenses, from their federal taxable income. Lastly, homeowners can exclude, up to a limit, the capital gain they realize from the sale of a home.

Homeowners do not have to count the rental value of their homes as taxable income, even though that value is just as much a return on an investment as stocks or bonds would be. That is the beauty of a real estate investment.

Mortgage Interest Deduction

Homeowners who itemize deductions at tax time may reduce their taxable income by deducting any interest paid on a home mortgage. The deduction is limited to the interest paid on up to $1 million of debt that is incurred or purchased for the home. Homeowners can also deduct interest paid on up to $100,000 of home equity debt.

Property Tax Deduction

Additionally, these homeowners who itemize can also apply the deduction of property taxes to their taxable income. The deduction is effectively a transfer of federal funds to jurisdictions that impose a property tax, enabling them to raise property tax revenue at a lower cost.

Imputed Rent

The return on homeownership, called imputed rent, is also excluded from taxable income. The tax code treats homeowners the same as renters while ignoring their simultaneous role as their landlords. 

Home Sales Profits

Homeowners are excluded from taxable income of up to $250,000 of capital gains o the sale of their home if they can satisfy these requirements: they have maintained the home as their principal residence during two of the past five years, and they have not claimed the capital gains exclusion for the sale of another home during that two-year period.

There are even more tax benefits that come with owning a home at tax time. More than just a wise and dependable investment you can make today, owning real estate can lower your tax bill and provide you with protection with differently layered taxes that are applied to your assets. Unlike stocks and bonds, real estate receives special taxation attention, solidifying itself as a fantastic first-time investment decision to make today.