Tax Benefits For Buying, Selling, And Owning A Home

Since 2019 is coming to a close and interest rates are rather low, we thought we could discuss the tax benefits of owning rather than renting a home.


Here are 7 tax benefits for buying, selling and owning a home.

As a RE/MAX agent in Flagstaff, Arizona, I am always asked, “what really are the tax benefits of owning your own home.” I have always known that it is usually better to own your home than rent for many reasons. One, you are creating equity instead of paying someone else’s mortgage and making them rich. How annoying is it when you are renting and you just want to paint a wall or put your own touch on your living space. As a homeowner, you can do anything you want!  But most important are the tax benefits of homeownership and you might even be saving money each month with a cheaper mortgage payment with the low-interest rates than renting. Especially here in Flagstaff.

There is a lot of discussion on this topic.  Let’s break down the main tax benefits you will see when you own a home and then you can make a decision on what’s right for you.

If you would like to have a little better idea on what you might be able to afford, here is a link to a calculator that takes into account your debt, income and down payment and will calculate what you can afford.



Buying, Selling and Owning a Home, what are the tax benefits

In most cases the interest you pay on your mortgage is deductible

If you own a home and your mortgage is not greater than $750,000, you will be able to deduct the interest you pay on the loan. This is one of the largest benefits to owning a home versus renting–as you could receive large deductions at tax time.

The  Tax Cuts and Jobs Act of 2017 (TCJA) reduced the limit that used to be $1 million and made some clarifications on deducting interest from a home equity line of credit.

Before the Tax Cuts Jobs Act, you could deduct interest on a mortgage up to $1 million-plus a HELOC up to $100,000. And it didn’t matter what your HELOC was used for (i.e., student loans, credit card debt).

Through 2026 the Tax Cuts Jobs Act is in effect and the law applies to mortgages and HELOCs has taken out after December 15, 2017. If you have taken a mortgage out before that date, then you will be grandfathered in and the $1 million limits will still apply.

The deduction is simple, just remember to review the IRS Form 1098 that will be sent by your lender and detail the amount you paid in interest on your loan on your tax return.

If you have closed on a home, you can also include the interest that you may have paid as part of your home sale. You can find this information on the settlement sheet that you received in your closing paperwork. If you do not have a copy of this settlement statement, ask your Real Estate Agent, they will have a copy for you. For more information, TurboTax has put together a nice set of frequently asked questions on this topic.


You are also able to deduct the amount you pay in property taxes

Another great benefit to owning a home is the ability to deduct your property taxes. Before the Tax Cuts Jobs Act, the rules were a little more flexible and you were able to deduct the full amount of your property taxes. Here are a few of the changes.

The new law allows you to be able to deduct up to $10,000. You also can no longer deduct foreign property taxes as you could pre-TCJA. The deduction for state and local income taxes was combined with the deduction for state and local property taxes, too.

If your taxes are added into your monthly mortgage payment and paid by the lender, you will see the amount you paid in taxes on your IRS Form 1098. You can apply that deduction directly to your taxes.

If you do not have a loan or you pay your taxes directly, you will need to make sure you have a record of the money you paid (for example a copy of the check you used). You can also deduct any taxes that you reimbursed to the seller if they prepaid it while owning the home. These can be found to find these on the settlement sheet.


Are you selling a home? There are tax benefits to selling your home

It is less likely that people are living in their homes for longer than 30 years anymore. With that said, it is probably safe to say we will sell our homes at some point before we have paid of the loan. That is where the benefit of home sales exclusion comes in.  If you have lived in your primary residence for two out of the five years before you sell it, you’re excluded from paying taxes on any profits you make for up to $500,000 if you’re married and up to $250,000 if you’re single.

Let’s say you are single and you buy a home for $200,000 and live in the home for seven years. Over this time frame, you put $50,000 of improvements into the home–making your total investment $250,000. Then in the seventh year, you sell the home for $400,000. You just made a profit of $150,000. According to the home sale exclusion, none of that $150,000 is counted as taxable income. This could save you thousands of dollars at tax time.

If for any reason you didn’t meet the requirement of living in the home two out of the five years before sale, you can still take advantage of the home sale exclusion–but your deduction will be prorated.


Private Mortgage Insurance (PMI) can be deducted in some cases

Private Mortgage Insurance (or PMI) is a fee you have to pay when you put less than 20% down on your home. Lenders do this to protect themselves from losses in the event you default on your loan.

If you took out your mortgage after 2007, it’s possible you can claim a tax deduction on your PMI payments. The current tax law states that you can claim the deduction if your adjusted gross income is $100,000 or less if you’re married or $50,000 if you’re single.

This hasn’t always been an option, though. According to House Loan Blog, “the mortgage insurance premium deduction extension was one of 30 tax provisions President Trump agreed to extend on February 9, 2018, when he signed H.R. 1892, the Bipartisan Budget Act of 2018.”

This is something that gets reviewed annually, so make sure you check with you lending professional as to the most current status. I have also seen some lenders that allow less than 20% down to avoid PMI. So again, each case is different, you will just want to ask what works best for your situation.



Benefits for those who work at home

No matter what type of work or how much work you do from your home, you can deduct your home office expenses and space that is used. The current tax law allows you to take a tax deduction of $5 per square foot, for up to 300 square feet of office space. You can get a maximum deduction of $1,500 but know that there are extremely tight guidelines on expensing your home office. I would always suggest talking to a tax professional, but if you want to read more about it first, TurboTax did a really in-depth piece about this topic.



Have you made energy-efficient upgrades to your home? You can take tax deductions of those too.

While most of the tax incentives for making energy-efficient upgrades to your home have gone away, there are still a couple worth noting. You can still claim tax deductions on solar energy–both for electric and water heating equipment, through 2021. The longer you wait, though, the less money you’ll get back. Here’s the percentage of equipment you can deduct, based on time of installation:

  • Between January 1, 2017, and December 31, 2019 – 30% of the expenditures are eligible for the credit
  • Between January 1, 2020, and December 31, 2020 – 26%
  • Between January 1, 2021, and December 31, 2012 – 22%

So if you are considering making energy-efficient upgrades in your home, the sooner the better if you want to get the most out of this tax incentive.



You can get a tax deduction for points (over the life of your loan!)

If you paid points to your lender when you got your mortgage or refinanced an existing one, you can take advantage of a tax deduction. The only caveat is that you have to have actually given money to the lender for these points.

If you are unfamiliar with what “points” are they’re almost always expressed as a percentage of the loan. For example, if each point is 1.5% and your home is $300,000, each point would cost you $4,500.

Where this benefit really kicks in is if you have a home equity line of credit or you’ve refinanced your loan. According to the IRS:

“You can deduct points paid for refinancing generally only over the life of the new mortgage. However, if you use part of the refinanced mortgage proceeds to improve your main home and you meet the first six requirements stated above, you can fully deduct the part of the points related to the improvement in the year you paid them with your own funds. You can deduct the rest of the points over the life of the loan.”

Assuming you do meet the qualifications, you can deduct the amount you pay toward points each month you made payments. When you make a mortgage payment, a fractional percentage is built into the loan for points–that’s the amount you can deduct. An example, if $10 of your payment each month is for points, you could deduct $120 at the end of the year (12 x $10), given you’ve made payments every month of the year.

I would definitely recommend talking to a tax professional before you take deductions on points.



In a nutshell, understanding the tax benefits of buying and owning a home can help you make a more educated decision. If you are still on the fence as to whether to buy or rent, take a look at our recent blog, Renting vs Owning, the Pros and Cons.   If you were to rent a home, you would pay your landlord a designated amount in rent each month. Your landlord would then owe taxes on that income and you would not be able to deduct your rental expenses from your income. If you own your home, you are making an investment with a return of what economists call “imputed rent.” For example, your mortgage payments are $2,000 per month, you are essentially paying yourself $24,000 each year to “rent” your home and while other countries consider that taxable income, in the U.S., it is not. Owners do not pay taxes on rental income from homes they own.

Source; PrimeLending,, TurboTax

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