Homeowner Tax Deductions – Wells Fargo

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The Tax Benefits of Homeownership

Owning your own home may come with tax benefits such as deduction opportunities and the opportunity to use equity financing.

As a homeowner, you may be able to deduct a variety of payments such as mortgage interest or property taxes (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 – You may have the opportunity to deduct mortgage interest on debt incurred to acquire, construct, or substantially improve a home. In some cases, debt incurred for home improvements may qualify. Subject to limitations, this expense is allowed as an itemized deduction.
  • 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. Subject to limitations, this expense is allowed as an itemized deduction.

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

Depending on your circumstances, home equity lines of credit can be a great financial resource.

Potential advantages of home equity financing

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.

If funds are used for substantial home improvements, consult your tax advisor to determine whether the loan may be treated as acquisition indebtedness, which may qualify for an interest deduction.