Buying a home is a major financial decision that can have significant tax implications. However, there are several strategies that traditional borrowers can use to save on their taxes when it comes to real estate. In this blog post, we’ll explore 5 ways to save on your taxes with real estate.
- Mortgage Interest Deduction
One of the most well-known tax benefits of owning a home is the mortgage interest deduction. Traditional borrowers can deduct the interest paid on their mortgage from their taxable income, reducing their overall tax liability. This deduction can be especially beneficial in the early years of homeownership when mortgage payments are primarily going towards interest.
- Property Tax Deduction
Another tax benefit of owning a home is the property tax deduction. Traditional borrowers can deduct the property taxes paid on their primary residence from their taxable income. This deduction can be particularly valuable for homeowners in areas with high property tax rates.
- Home Office Deduction
If you work from home, you may be eligible for the home office deduction. This deduction allows you to deduct a portion of your home expenses, including mortgage interest, property taxes, and utilities, based on the square footage of your home office. To qualify, your home office must be used exclusively for business purposes.
- Energy-Efficient Upgrades
Making energy-efficient upgrades to your home can not only reduce your utility bills, but it can also qualify you for tax credits. Traditional borrowers who install solar panels, for example, may be eligible for a federal tax credit worth up to 26% of the cost of the installation. Other energy-efficient upgrades, such as new windows or insulation, may also qualify for tax credits.
- Capital Gains Exclusion
When traditional borrowers sell their primary residence, they may be eligible for a capital gains exclusion. This exclusion allows homeowners to exclude up to $250,000 of capital gains from the sale of their home if they are single, or up to $500,000 if they are married filing jointly. To qualify for the exclusion, homeowners must have lived in the home as their primary residence for at least two of the past five years.
In conclusion, there are several ways that traditional borrowers can save on their taxes when it comes to real estate. The mortgage interest deduction, property tax deduction, home office deduction, energy-efficient upgrades, and capital gains exclusion are all valuable tax benefits to consider. By understanding these tax-saving strategies, borrowers can maximize their tax savings and build long-term wealth through real estate ownership.