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The Tax Benefits of Homeownership

Owning your own home may come with tax benefits such as deduction opportunities and tax advantages related to equity financing.

As a homeowner, you may be able to deduct a variety of payments such as mortgage interest, home equity interest, property taxes, or mortgage insurance premiums (restrictions apply, consult a tax advisor).

Home tax deductions

Talk to your tax advisor to find out whether you can use some of these deductions at tax time:

  • Interest payments – If you itemize your deductions, you may be able to deduct the interest portion of your mortgage payment.
  • Mortgage insurance premiums paid – Mortgage insurance premiums paid upfront or with payments may be deductible under certain circumstances. The mortgage loan must have originated on or after January 1, 2007 in order for it to be a reportable item; if it is eligible for reporting, it will appear on your 1098 statement. This deduction will expire as of the end of 2016 unless Congress passes a law extending it.
  • Points and fees – You may be able to deduct prepaid interest on the mortgage of your primary residence, certain late charges paid with regards to mortgage payments, mortgage prepayment penalties, and redeemable ground rent.
  • Property tax deductions – Potential property tax deductions may include property taxes paid at closing or paid to a taxing authority, either directly or through an escrow account during the year. This expense is allowed as an itemized deduction.
  • Tax deductions for home improvements – If you itemize your deductions, you may have the opportunity to deduct mortgage interest on up to $1,000,000 ($500,000 if married filing separately) of debt incurred to acquire, construct, or substantially improve a home.
  • Home equity interest -  Even if the proceeds are used for purposes other than home, such as a vacation or buying a car, you may be able to deduct home equity interest on up to $100,000 ($50,000 if married filing separately) of debt secured by a qualified residence.

If you meet all the requirements, you can exclude up to $250,000 ($500,000 on a joint return) of gain from the sale of a principal residence. Generally you need to have owned the home at least two years and used it as a principal residence for at least two of the last five years. A smaller exclusion may be available if you fail to meet the time requirement due to unanticipated circumstances. This exclusion can be used only once every two years. You don’t have to buy another home to qualify for the exclusion.

It's good practice to keep complete records of your property and expenses related to improvements until the statute of limitations runs out — generally three years from the filing date (consult your tax advisor for details). Some items should be kept for as long as you own the property and even after you sell it, for as long as the statute of limitations applies.

For more details about tax benefits relating to your home, consult your tax advisor and visit the IRS website to review these publications:

  • 530: Tax information for homeowners
  • 936: Home mortgage interest deduction
  • 523: Selling your home
  • 521: Moving expenses

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Depending on your circumstances, home equity lines of credit can be a great financial resource. Consult your tax advisor to learn about the potential tax advantages of home equity financing.

Potential tax advantages of home equity financing

Home equity lines of credit may help achieve your financial goals and can potentially result in tax deductions on interest payments.

With home equity financing, you may be able to consolidate high-interest rate debt, make home improvements, pay educational expenses, finance a major purchase like a new car and even pay your taxes. You should consult your tax advisor regarding the deductibility of interest.

View our equity account options or use our home equity rate/payment calculator to see which home equity account may be right for you.

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