For many families, buying a home is not only a place to build memories but also one of the most significant investments of a lifetime. With the right tax planning, homeownership can be the cornerstone of a robust tax strategy. The tax code provides a variety of incentives specifically designed to make owning a home more affordable and financially beneficial.
Here are some essential tax benefits for homeowners to consider:
1. Mortgage Interest Deduction
When you buy a home instead of renting, you transition from paying non-deductible rent to potentially deductible mortgage interest. This tax break can lead to significant savings, especially in the early years of a mortgage when interest payments are typically at their highest.
2. Property Tax Deduction
Homeowners can deduct up to $10,000 in combined property and state and local income taxes each year. This cap, while reduced from previous years, still offers valuable savings that renters do not enjoy.
3. Capital Gains Exclusion on Home Sales
One of the most valuable tax benefits for homeowners is the exclusion of up to $250,000 ($500,000 for married couples filing jointly) of capital gains from taxable income when selling a primary residence. This can be especially beneficial for families who have owned their home for a long time and built up substantial equity.
4. First-Time Homebuyer IRA Withdrawal
If you’re a first-time homebuyer, you can withdraw up to $10,000 from an IRA penalty-free, provided the funds are used to purchase your home. This provision offers a helpful boost for those entering the housing market for the first time.
5. Home Office Deduction
Self-employed individuals or remote workers may be able to deduct certain home office expenses if part of their home is used regularly and exclusively for business purposes. For those looking for a simpler option, a standardized deduction is available, reducing the paperwork involved.
6. Debt Forgiveness on Principal Residence
If any of your qualified principal residence mortgage debt is forgiven, you can exclude it from gross income under certain conditions through the end of 2025. This can provide much-needed relief if you are restructuring or facing financial difficulty with mortgage payments.
7. Energy Efficiency Credits
For homeowners investing in eco-friendly upgrades, several energy credits are available to offset costs, including:
- Energy-Efficient Home Improvement Credit for eligible upgrades made before 2033.
- Residential Clean Energy Credit for installations like solar panels, wind turbines, and other clean energy systems placed in service before 2035.
Some common improvements eligible for these credits include energy-efficient doors, windows, boilers, and heat pumps.
8. Illinois-Specific Property Tax Credit
If you’re a resident of Illinois, you may be able to claim a state income tax credit equal to 5% of the property taxes paid on your primary residence, provided your federal AGI does not exceed $500,000 for joint filers or $250,000 for single filers.
Take Action for Your 2024 Tax Planning
Whether you’re considering purchasing, selling, or even renting out a second property, these provisions can have a significant impact on your tax picture. Many of these benefits also apply to second homes, offering flexibility in tax planning. We encourage you to schedule an appointment with us to discuss how these homeownership tax incentives align with your overall tax strategy.
Let The Hechtman Group help make your homeownership work for you in 2024 and beyond. Contact us today to learn more about maximizing these tax benefits.
At The Hechtman Group LLC, we understand the burdens small businesses endure in assuming more than one role to support the organization. That’s why we offer highly experienced client advisory services (CAS) for companies who can benefit from outsourcing their accounting, CFO, or Controller consulting needs. Additionally, our comprehensive expertise in QuickBooks certified ProAdvisor means that we can create a tailored accounting solution to centralize your finances and simplify your books. Our CPAs and accountants can guide you through all the necessary steps while also creating best practice opportunities for long-term growth.