For most Americans, purchasing a home is the largest financial investment they will make. While homeownership has its costs (and sometimes frustrations), it also comes with significant tax advantages that can make it a financially wise decision. The benefits of tax savings and wealth building far outweigh the angst.

One of the most significant tax benefits of homeownership is the ability to deduct mortgage interest. Taxpayers who itemize deductions can deduct interest paid on loans used to buy, build, or substantially improve their main or second home. The standard mortgage deduction is probably the most significant aspect of homeownership tax savings. For example, if your mortgage originated on or before December 15, 2017, owners can deduct interest on up to $1 million of mortgage debt, and married but filing separately can take up to $500,000. For mortgages taken after December 15, 2017, the limit changes to $750,000 and $375,000 if married filing separately.

Homeowners who itemize deductions can also deduct state and local real-estate taxes, subject to the State and Local Tax (SALT) cap. The SALT deduction is a hot topic in Washington, DC, as the House and Senate grapple with extending and expanding the first Trump Administrations tax relief package, which expires later this year. Currently, the total deduction for state and local taxes, including property taxes, is limited to $10,000 per return ($5,000 if married filing separately). This cap is set to expire at the end of 2025, and if lawmakers extend or raise the limit, more homeowners could benefit from higher deductions.

For self-employed individuals who use part of their home exclusively for business purposes, there is an additional tax benefit: the home-office deduction. Check with your tax advisor before deciding to apply this deduction strategy because the IRS loathes to see this on an individual return. Currently, however, taxpayers who earn income from their self-employment and only use the space for that business can deduct $5 per square foot of the portion of the home used for business, up to a maximum of 300 square feet. And there’s a plethora of tax credits for various energy saving and environment enhancing home improvements such as homeowners who invest in energy-efficient improvements for heat pumps, insulation, windows, and door as well as water heaters.

You may qualify for a tax credit of up to $3,200 per year which covers 30% of the cost of qualifying improvements. Tax credits work differently than deductions as tax credits provide a dollar-for-dollar reduction of tax liability, making them even more valuable. The question is often asked regarding the profit a seller receives when selling a home. When selling a home that has appreciated in value, homeowners may owe capital gains taxes.

The rules on state capital gains vary from state to state so be aware of that. But the IRS allows exclusions. Single filers can exclude up to $250,000 of capital gains and married couples can
exclude up to $500,000 if they file jointly. Remember, however, that the house had to be used as a primary residence for at least two of the previous five years. Homeownership provides many tax-saving opportunities, from mortgage interest and property tax deductions to energy-efficient improvement credits and capital gains exclusions. While tax laws can change, these benefits make buying a home an attractive financial decision for those looking to reduce their tax burden and build long-term wealth. Buying a house, then, is always a smart move!

Gary Wisenbaker (gary@realtyadvisorsga.com) is a REALTOR® at Century 21 Realty Advisors and can be reached at (912)713-2553 and gary50155@gmail.com