Good news: American tax law favors homeowners! Of course, every situation is different, and—as always—there are caveats. While I can’t give exact numbers for everybody who buys real estate here in Philly, I can list some of the general perks you need to know. As always, talk with your financial planner about your individual tax situation.
- Deduction on Mortgage Interest—You can write off all the interest you pay for your home mortgage each year, up to $1.1 million! This is especially helpful for first-time home buyers because the interest is often front-loaded; so the tax benefits are front-loaded also. You’ll just need to file an itemized return so that you can itemize all of these deductions—talk with your tax advisor about itemizing vs. taking the standard deduction, which, for some people, might even be a better idea.
- Real Estate and Property Taxes—The local and state property taxes we pay here in Philly can also be deducted from your federal returns in the vast majority of cases, but oddly, only about half of people take this deduction, probably because people aren’t aware of it. Now you know!
- Interest on Home Improvement Loans—Interest on the majority of home improvement loans (and many home equity line of credit loans) is also tax deductible.
- Energy Efficiency & Renewable Energy Tax Deductions—Homeowners who make home improvements like installing better insulation, energy-efficient storm doors and windows, heating and cooling systems, etc. can also get up to $500 back from the IRS this year. If you install renewable energy systems in your home (sun or wind power), you might even be eligible for a credit of up to 30% of the cost of that equipment and installation.
- Your closing cost– For the year in which you purchase your home you can claim some of the lending origination fees and other loan items on you taxes. Make sure you provide your closing disclosure to your financial planner or accountant, so that they can maximize your savings!
Aside from these big five that apply to almost any homeowner, there are tax deductions and credits that may apply to you as well. Ask your tax guru about things like:
- Mortgage Credit Certification
- Mortgage Points Deduction
- Private mortgage insurance deductions
- Tax-free IRA withdrawals
- Home office deductions
For sellers: If you sell a home that you lived in for at least 2 of the last 5 years, up to $250,000 of that profit is tax free and 500,000 if married, filing jointly.
Whether you’re a first-time homebuyer or an old hand homeownership, give me a call and I can help you find a great Philly home or help you sell your current property!