How Homeownership Helps You during Tax Season

Posted by Laine Smith on 3/8/15 9:47 AM

Topics: Economy Home Ownership

The perks of homeownership are evident year-round, but when it comes to tax season, benefits really increase for homeowners. Here’s how owning your own home helps reduce your tax bill.


Interest and Points

Americans save around $100 million every year by deducting mortgage interest on their tax returns, according to®. Homeowners can deduct up to $1 million in interest payments for a first or second home.

If you paid points, or origination fees, on your home purchase you can deduct the entirety of points in the year they were paid. A one percent fee on a $100,000 equals one point, or $1000. Refinance loan points are deducted as an amortization over the period of the loan.

Property Taxes

Homeowners can also deduct property taxes that were paid to their city or town for the year, though it may not be the same amount paid into escrow. The deductible amount does not include any other city/county fees that may have been included on the same bill as property taxes.

Private Mortgage Insurance (PMI)

If you purchased your home on or after January 1, 2007, your PMI premiums are tax deductible. The amount that you can deduct depends on income. If your adjusted gross income is more than $100,000, the deduction amount begins to phase out. The deduction is reduced by 10 percent for every $1,000 you make over $100,000 and diminishes completely by $109,000. For married taxpayers filing separately, the phase out begins at an adjusted gross income of $50,000.

Profit on Home Sale

If you sold your home, you can earn up to $500,000 for married taxpayers or $250,000 for single taxpayers on the sale of your home and pay no federal income tax. You must have owned and occupied the home for at least two of the past five years to qualify.

Energy Efficient Home Materials

If you invest in energy efficient home improvements, 10 percent of material costs can be used as a tax credit, up to $500.

At Compass, we are not tax professionals, so we always suggest you meet with a Certified Tax Professional or Certified Public Accountant (CPA) before filing your taxes to ensure accurate deductions in accordance with IRS regulations and to guarantee you receive the highest possible tax return.

For more info on the benefits of homeownership, download our free Mortgage 101 Handbook, a great reference for first-time and repeat homebuyers.

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