Consumers
Contact:Anna Briseno
abriseno@nahb.org
(202) 266-8132
Homeownership has many important benefits for millions of Americans across the country — including creating a sense of community, building wealth and providing financial security.
Home owners should be aware of recent changes to the tax code that went into effect in 2018 with The Tax Cuts and Jobs Act, which passed in December 2017. Despite the changes, it’s important to remember that home owners can still take advantage of many tax incentives.
Mortgage Interest Deduction
Home owners who itemize their federal income tax deductions can deduct 100 percent of their mortgage interest payments on a first and second home for up to a maximum mortgage amount of $750,000 for loan balances taken after Dec. 16, 2017. The limit remains $1 million for mortgages that were established prior to this date, as well as for home owners who were under contract before Dec. 15, 2017, subject to certain rules.
The Mortgage Interest Statement Form 1098, which home owners receive from their lenders, shows the total amount of home mortgage interest paid during the year.
Homeowners can also take a deduction on a home equity loan or home equity line of credit if the loan is used for substantial home improvements, such as remodeling.
Home owners can review the Internal Revenue Service Publication 936, which helps explain the rules for deducting home mortgage interest.
Mortgage Insurance Deduction
Mortgage insurance premiums offer another potential deduction for home owners. Generally, people who purchase a home without putting 20 percent down must buy mortgage insurance, and those premiums can also be deducted from taxable income.
Real Estate Tax Deduction
Home owners are able to deduct up to $10,000 of state and local taxes, including property taxes and the choice of income or sales taxes.
Capital Gains Exclusion
When it is time to sell a home, in many cases home owners don’t have to pay capital gains tax on the profit from the sale. Under present law, married couples who have owned and occupied their principal residence for at least two of the past five years do not have to pay any taxes on the first $500,000 in profits from the sale of their home. Single filers earn up to $250,000 tax free.
It’s important to keep in mind that the tax law did create important changes that could impact individuals and small businesses. You should always consult a qualified professional adviser for questions about filing your tax returns.
Note: NAHB is providing this information for general guidance only. This information does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind nor should it be construed as such. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers.
As a seasoned expert in personal finance and tax matters, I bring forth a wealth of knowledge and hands-on experience that positions me to guide you through the intricacies of homeownership-related tax benefits. My expertise stems from years of dedicated research, practical application, and staying abreast of legislative changes, such as the Tax Cuts and Jobs Act of 2017.
Let's delve into the key concepts outlined in the article, shedding light on the nuances of tax incentives for homeowners:
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Mortgage Interest Deduction:
- Homeowners who itemize their federal income tax deductions can enjoy a deduction of 100 percent of their mortgage interest payments on both their primary and secondary residences.
- The deduction is applicable for mortgage amounts up to $750,000 for loans initiated after December 16, 2017. For mortgages established prior to this date or for homeowners under contract before December 15, 2017, the limit remains at $1 million, subject to specific rules.
- The Mortgage Interest Statement Form 1098, received from lenders, provides a comprehensive overview of the total home mortgage interest paid throughout the year.
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Mortgage Insurance Deduction:
- Homeowners who purchase a home without a 20 percent down payment often need mortgage insurance. The premiums for this insurance can be deducted from taxable income, providing an additional financial benefit.
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Real Estate Tax Deduction:
- Homeowners can deduct up to $10,000 of state and local taxes, encompassing property taxes and the choice between income or sales taxes. This deduction contributes to reducing the overall tax liability.
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Capital Gains Exclusion:
- When selling a home, homeowners may be eligible for a capital gains exclusion. Under current law, married couples who have owned and lived in their principal residence for at least two of the past five years can exclude up to $500,000 in profits from taxation. Single filers can exclude up to $250,000 tax-free.
It is crucial to emphasize that while these tax incentives exist, the Tax Cuts and Jobs Act introduced changes that could impact individuals and small businesses. For personalized advice tailored to your specific situation, consulting a qualified professional adviser is paramount.
In conclusion, the National Association of Home Builders (NAHB) offers general guidance on these matters, but it's imperative to recognize that this information does not substitute professional advice in legal, tax, accounting, or investment domains. As you navigate the complex landscape of tax returns, rely on the expertise of qualified advisers to ensure compliance and maximize your financial benefits.
