Tax Deductions for Home Buyers and Sellers
Nearly everyone is aware of the costs involved in both buying and selling real estate. For buyers, the main costs are going to be your down payment and closing costs that are associated with your loan. For sellers, there are closing costs involving real estate agent commissions and tax stamps. However, the good news is there can be some savings when it comes to tax deductions for both sides of the transaction. Here is a closer look to make sure you are taking full advantage of your options that are available to you.
Home Buyer Tax Deductions
Mortgage Interest – Limits may have changed, but deducting mortgage interest in some capacity is still a good savings. For most everyone, this will include nearly all of it. Especially in the earlier years of your loan, this can account for a substantial deduction.
Property Taxes – Property taxes are typically also deductible. This holds true for your second home as well should you own one. In the interest of saving on your actual tax bill, check to see if you qualify with your town’s homeowner exemptions.
Private Mortgage Insurance – Homeowners with less than 20% equity in their homes must carry private mortgage insurance or “PMI.” Depending on your income, PMI is typically a tax deductible item. Note: You can terminate PMI after a set amount of time and once your home has appreciated enough to have met the equity requirements from your lender.
Points – Mortgage points can be great as some buyers choose to lower their interest rate this way if they expect to be in their new home long term. Be sure to include any points you have purchased on your taxes for a savings.
Energy Upgrades – For select energy improvements, there can be tax credits available. Things like solar panels, solar water heaters and the like often have credits available. Check with your accountant for the ones that are currently offering the most incentives that you may be able to take advantage of.
Home Equity Loan – Before you put a larger improvement project on a credit card, consider a home equity loan or “HELOC.” Just like interest on your mortgage, this is very similar where you can deduct the interest on your taxes.
Home Seller Deductions
Closing costs – Many of the costs related to the sale including legal fees, escrow fees, advertising costs, real estate agent commissions and even home staging fees can all be deducted.
Home improvements – Did you make improvements to your home to make it more marketable like painting and/or miscellaneous repairs? So long as you made these within 90 days of closing, you can deduct these. Remember to retain your receipts!
Mortgage interest – You may deduct the interest on your mortgage (up to a max of $750,000) for the portion of the year that you owned your property.
Capital gains – This is more of an exclusion rather than a deduction. If you have lived in your home at least two of the past five years, you can exclude up to $250,000 of profits on your property or up to $500,000 if you are married.