By Anthony Brunson, P.A.
There are two big tax benefits you get when owning a home: You can deduct the mortgage interest that you pay each year and you can deduct at least a portion of your property taxes.
Mortgage interest deduction: The most valuable tax benefit is the mortgage interest deduction. This perk allows you to deduct the interest you pay each year on any mortgage that you use to buy, build or improve your primary residence or a second home.
Under federal law, you can deduct the interest you pay on up to $750,000 of combined mortgage debt if you are filing your taxes as an individual or as a married couple filing jointly. Married couples filing separately can deduct up to $375,000 in mortgage debt. (Higher limits apply if you bought your home on or before the end of 2017 — check the IRS for details.)
What’s especially nice is that these deduction rules don’t apply only to the mortgage you used to buy your primary residence. You can also deduct the interest you pay on a second home. Remember, though, that you can only deduct up to a combined $750,000 in interest, no matter how many mortgages you have.
You can deduct the interest — again up to the federal limits spelled out above — on home equity loans and home equity lines of credit, too. But to take the deduction, you must use the funds from these loans to make improvements to your primary or second home. If you use the dollars from these home equity loans to pay down credit card debt or cover your child’s college tuition, you can’t deduct the interest you paid on them.
Property tax deduction: You can also deduct the state and local property taxes that you pay each year on your home, though this deduction might not be as valuable if you live in a state in which property taxes are especially high. That’s because you can only deduct up to $10,000 for state and local taxes each year, a change that went into effect after Congress passed the Tax Cuts and Jobs Act in 2017.
If you live in a state in which property taxes routinely soar past that $10,000 limit, then you won’t be able to deduct all the money you spend each year on these taxes. That $10,000 cap is for a combination of taxes, including state and local income and sales taxes, too, which means that in high-property-tax states, you’re more likely to be paying more than the limit.
Still, you’re at least able to deduct some of the property taxes that you pay, providing a bit of relief when you file your income taxes each year.
This is just a summary; there may be other provisions that affect you. The point is that you have to look at the big picture. To understand in detail how home ownership will affect your bottom line, work with a financial professional.
