Congrats on your new home! Now you’re building equity in an investment instead of paying rent. And while the cost seems high, there are deductions available to you as a homeowner that can reduce your tax bill. Here are some things to keep in mind as you prepare your return.
1. You can claim specific homeownership deductions
With recent changes in tax law, owning a home is no longer the “ticket to a big deduction” on your tax return. The increase in the standard deduction has made itemizing deductions not as beneficial for the average person. But if you do decide to itemize this year, there are a few deductions that are now available to you as a homeowner—property taxes, mortgage interest, loan interest, points, and home improvements required for medical care. When you get to the Credits & Deductions section, we’ll show you all of these and guide you through claiming those that you qualify for.
2. Looking forward, you should save your receipts for home improvements for when it comes time to sell
Save receipts and records for all improvements you make to your home. While you can’t deduct home improvement expenses now, when you sell your home, their cost can reduce your gain—along with any capital-gains tax—when you sell in the future.
3. You won't pay taxes on the first $250,000 you make from the sale of your home
If you sold your home to buy this one, you won’t pay taxes on the first $250,000 (also known as a gain). If you file jointly, you won't pay taxes on the first $500,000. That income is free and clear as long as you owned the home, it was your main home for at least two years within the five years leading up to the sale. You also can only get this tax benefit every two years, so if you sold previously, make sure it’s been at least that long before claiming this tax benefit again.