What a match! Homeownership & Taxes

Spring is here!

For me, it's a time to reorganize and reorient. My house gets a thorough cleaning and we throw out or donate old items. I get to work potting plants and my home office gets a decluttering; this year, we finally shredded old tax returns from 2010!

Spring also means tax season. Homeowners enjoy a number of tax benefits, because it's one of the ways in which the government incentivizes its people to become homeowners. What are all these benefits? Keep reading - I put together a list of the most common tax breaks that benefit homeowners. Some will likely be familiar to you, but maybe there's one or two you didn't know about.

For most, taking the standard deduction will probably make the most sense; it's currently at $27,700 for married couples filing jointly, $20,800 for heads of households, and $13,850 for single filers and married individuals filing separately. For others, itemizing expenses gets the biggest return. For example, if you spent more in deductible costs in a year than the standard deduction amount, then it may make sense to tally up those receipts and claim your larger deduction.

Consider all this as a starting point for a conversation with your CPA or other qualified tax professional, to make sure you're taking maximum advantage of all the tax benefits available to you as a homeowner. When it comes to your house and taxes, you will always want to get the most for your money.

Homeowners' Exemption

Processed through Orange County's Assessor, this benefit exempts $7,000 of your primary property's value from taxation. Action is required to claim this benefit - you'll need to fill out Form BOE-266 from the Assessor's office (for Orange County, California residents) and follow submission instructions.

Capital Improvements

Permanent home improvements like adding a bathroom to make a junior ensuite - a current high-value trend - can bring benefits beyond the increased value of your property. These improvements increase your cost basis, which can potentially reduce your capital gains at sale. And they're partly deductible (the deductible cost is reduced by the amount of the property value increase). These benefits are typically realized upon sale of a home. And, if you use a HELOC (Home Equity Line of Credit) to fund your improvement, the interest you pay on the HELOC may be tax deductible, too.

***Note*** It's a good idea to save all home improvement receipts and invoices. Scanning and saving receipts to cloud storage like DropBox or OneDrive is a great way to ensure you have important documents if they're ever needed, for example, during a tax audit or when selling your home.

Mortgage Interest & Points

Interest paid on home financing is typically deductible, up to a certain amount. This deduction typically applies to loans funding primary as well as secondary properties.

Property Tax Deduction

Property taxes are generally tax deductible, up to $10,000 ($5,000 if married and filing separately). And don't forget, second installments of property taxes are due April 10!

Home Office Deduction

Do you run a business from your home office? You may qualify for a tax break with IRS Form 8829.

Medical Improvements

As part of your medical expense deductions, you can include the cost of installing medically-necessary home improvements benefitting you, your spouse, or a dependent. Examples include building entrance ramps, widening doorways to make them wheelchair-friendly, etc.

Energy-Efficient Improvements

The IRS offers tax credits for energy-efficient improvements made prior to Dec. 31, 2023.

Capital Gains

You can exclude up to $250,000 of gain over your purchase price (up to $500,000 if filing jointly), so long as you've owned the home and used it as your primary residence during at least 2 of the last 5 years, and haven't used this exclusion in the 2 years before the sale of the home. Arguably one of the biggest homeowner benefits, this tax break could mean no capital gains taxes on your home's appreciated value.

Trusts & Taxes

Real property distributed through a trust can have favorable tax treatment for your heirs, depending on the type of trust and how it's set up. Consult with a trusted estate planning attorney to discuss your goals and options. If you already have a trust, make sure you're keeping it current on at least an annual basis.

Want even more information? Click here to read IRS Publication 523 about Selling Your Home.