Purchasing a home can provide you with a sense of safety and security knowing you at least will have a roof over your head. However, buying a home is a significant financial decision, and it can also bring with it some tax benefits. Understanding these benefits can help you make the most of your investment. Whether you’re a first-time homebuyer or a seasoned homeowner, these tax advantages can help reduce your overall tax burden and potentially save you significantly on tax liabilities.

Mortgage interest deduction

One of the most well-known tax benefits of owning a home is the mortgage interest deduction. This allows you to deduct the interest paid on your mortgage from your taxable income. The mortgage interest deduction is limited to the first $750,000 of mortgage debt for new homebuyers and $1 million for those who bought their homes before December 16, 2017. Married couples who file separately will have a limit of $375,000 for each spouse. This deduction can result in substantial savings, especially for those with high mortgage balances.

Property tax deduction

Another tax benefit of homeownership is the property tax deduction. Property taxes are a recurring expense for homeowners which can add up quickly. Fortunately, you can deduct these taxes from your taxable income. This deduction can help offset the cost of homeownership and make it more affordable.

Capital gains tax exclusion

Another tax advantage of owning a home is the capital gains exclusion. If you sell your home, you may be eligible to exclude up to $250,000 in capital gains from the sale of your home if you’re single, or up to $500,000 if you’re married and file a joint tax return. This exclusion applies only if you’ve lived in your home as your primary residence for at least two of the five years prior to the sale.

Various tax credits

In addition to these tax benefits, there are also several tax credits available to homebuyers. For example, the first-time homebuyer credit provides a one-time tax credit of up to $8,000 for eligible homebuyers. To qualify, you must be a first-time homebuyer or have not owned a home in the past three years. 

Another tax credit available to homebuyers is the energy-efficient home credit. This credit provides a tax credit of up to $500 for homeowners who make energy-efficient improvements to their homes. These improvements can include things like adding insulation, upgrading your HVAC system, or installing energy-efficient windows.

Comprehensive wealth management

Of course, effective wealth management strategies do not only take taxes into consideration. Investing in real estate is not a bad idea but you need to understand each investment decision in the broader context of an overall personal finance strategy. This will include not only investment strategies but plans on how to save for retirement and ensuring your intended beneficiaries will receive your assets when you pass away. These are all aspects of personal finance planning which a professional wealth advisor can help you with.

Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors we are not qualified to render advice on tax or legal matters. Raymond James does not provide tax or legal advice. Please consult your own legal or tax professional for more detailed information on tax issues and advice as they relate to your specific situation.