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Tax Tips for Homeowners

Before you became a homeowner, your taxes were probably pretty simple. Taxes are a little more complex for homeowners, but there are some benefits too.

Federal Income Tax

When income tax time comes, you will enjoy a reward for sticking to your homeownership goals.  You can subtract the interest you pay on your mortgage loan and your property taxes — two of the major expenses associated with home ownership — from your total income.  These deductions reduce the federal (and in most cases state) income taxes you owe, saving you thousands of dollars.

For more information, consult a professional tax advisor or the IRS hotline at (800) 829-1040.  Many communities offer free tax preparation assistance from Volunteer Income Tax Assistance (VITA) volunteers from January to April 15.  Details are available from the IRS hotline.

What You Can Take Off Your Taxes

  • Mortgage Interest.  The deduction for interest alone may save you thousands of dollars in federal income taxes, especially in the early years of your mortgage when the bulk of your month mortgage payment is interest.

If you are paying off both a first and second mortgage loan on your house, you can also deduct the interest on your second mortgage from your taxable income.

  • Points.  In your first year as a homeowner, any points (advance interest) you paid to the lender as part of getting your mortgage loan also count as deductions from your income.
  • Moving expenses.  If you moved because of your job, you may be able to deduct some of those expenses.  You will need receipts for all of your moving costs.
  • Property taxes. You can deduct property taxes you pay to state and local governments from your federal income tax.  States may also allow property tax deductions.  Low- to moderate-income and/or first-time homeowners may qualify for reduced property taxes in some states.

Capital Gains Tax

Some day you are likely to sell your home.  If you sell it for more than you paid for it you will have a gain, or a profit.  The federal government taxes people who earn profits from selling valuable things they own.  This is the capital gains tax. Homeowners get a break.  If you have lived in your home for at least two of the past five years and sell it, you may be able to exclude up to $250,000 of the profit from your income.  If you are married, file a joint return and meet certain other requirements, you may be able to exclude up to $500,000 of profit from your income.