Your Home May Be Your Most Valuable Asset

Top 7 Tax Breaks for Home Owners

Owning a home means a lot more than just a roof over your head. A house is often a family’s most valuable financial asset. It can also provide annual savings come tax time.

Borrowers who put down less than the traditional amount are often required to take out private mortgage insurance (PMI) until they've gained enough equity in their home. PMI fees typically equal 0.5-1% of the total loan amount. If your annual income is less than $50,000 for singles or $100,000 for couples, you may deduct the annual cost of your PMI.  

Property tax deduction

The IRS allows home owners to fully deduct the amount paid in annual property taxes for both their primary residence and a vacation home. Payments must be claimed in the year they were paid and can be deducted every year.  

Home office deduction

If you are self-employed with a home office, you may be able to write-off some of the costs of doing business from home. You are allowed to deduct a percentage of your utility expenses based on the amount of square footage your office occupies in your home. The more of your home the office uses, the more you are able to deduct.  

HELOC interest deduction

Many home equity lines of credit (HELOC) allow for interest-only payments during the draw period of the loan. If you have a current HELOC, you can deduct interest paid on loans up to $100,000, regardless of how you use the funds. This deduction can be claimed every year HELOC interest is paid.  

Capital gains exclusion

If you've lived in your home for at least two years before selling, you may claim capital gains exclusion for the year in which you sell your home. This allows you to pay no capital gains tax on profits from the sale of your home — up to $250,000 for singles and $500,000 for married couples filing jointly.  

The 7 Tax Benefits to Home Ownership

Tax Break Ownership Phase Limits

Closing costs deduction

Buying

Deduct points paid at closing. 1 point equals 1% of loan value.

Mortgage interest deduction

Owning

Deduct interest paid on up to $1 million of debt.

PMI deduction

Owning

Claim if income is less than $50,000/yr for singles & $100,000/yr for couples.

Property tax deduction

Owning

Deduct 100% of property taxes paid each year.

Home office deduction

Owning

Deduct expenses for a home office based on square footage.

HELOC interest deduction

Owning

Deduct interest paid on up to $100,000 in debt.

Capital gains exclusion

Selling

Sell after 2 years and pay no capital gains on profits up to $250,000 for singles & $500,000 for couples.

More questions? We've got answers

Homeownership is a big responsibility, but you don't have to shoulder it alone. BECU's team of mortgage advisors can answer your questions and guide you in the right direction when it comes to home financing.

*Consult your tax advisor for details
1 “Points paid by the seller. The term “points” includes loan placement fees that the seller pays to the lender to arrange financing for the buyer. Page 7 https://www.irs.gov/pub/irs-pdf/p530.pdf
2 See IRS – Part 1 Mortgage Home Interest Deduction https://www.irs.gov/pub/irs-pdf/p936.pdf
“Mortgages you (or your spouse if married filing a joint return) took out after October 13, 1987, to buy, build, or improve your home (called home acquisition debt), but only if throughout 2016 these mortgages plus any grandfathered debt totaled $1 million or less ($500,000 or less if married filing separately).” 
3 https://www.irs.gov/publications/p936/ar02.html#en_US_2016_publink1000296058
“The mortgage interest statement you receive should show not only the total interest paid during the year, but also your mortgage insurance premiums paid during the year, which may qualify to be treated as deductible mortgage interest. “
4 Source: IRS – Real Estate Taxes https://www.irs.gov/publications/p530/ar02.html#en_US_2016_publink100011838
5 Source: IRS – Home Office Deduction https://www.irs.gov/businesses/small-businesses-self-employed/home-office-deduction
6 IRS – Home Equity Debt: https://www.irs.gov/publications/p936/ar02.html#en_US_2016_publink1000230008
“Unless you are subject to the overall limit on itemized deductions, you can deduct all of the interest you paid during the year on mortgages secured by your main home or second home in either of the following two situations. All the mortgages are grandfathered debt.The total of the mortgage balances for the entire year is within the limits discussed earlier under Home Acquisition Debt and Home Equity Debt .” 
7 “If you have a capital gain from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income. You may qualify to exclude up to $500,000 of that gain if you file a joint return with your spouse.” https://www.irs.gov/taxtopics/tc701.html