Top 3 Tax Benefits for Homebuyers & Sellers

April 07, 2022

Buying a home will most likely be the biggest purchase you’ll ever make, so it’s imperative to know how to get the most value for your money.

Taxes Benefits on Home

The Benefits

Although the cost of buying a house is a primary consideration—especially with the current uptick in market prices—potential buyers should also think beyond their initial purchase and look ahead to long-term ownership. One savings strategy to note is tax benefits for homeowners. Several deductions are available—let’s look at three of the top benefits:

1. Mortgage Interest

The biggest tax deduction homeowners typically receive is for the interest paid on their mortgage. All of the mortgage interest can often be deducted, but it depends on when the loan began:

  • If the mortgage was taken out after December 16, 2017, up to $750,000 can be deducted.
  • If the loan began before December 16, 2017, but after October 13, 1987, you can deduct up to the first $1,000,000.

Not sure how much interest you paid this past year? No worries—your lender will provide Form 1098 at the end of the year summarizing your total.

2. Property Taxes

Property tax deductions are another way to minimize what you owe on your taxes. A married couple filing jointly can save up to $10,000 in property taxes, in combination with state and local income taxes or sales taxes. (Married folks filing separately can deduct up to $5,000.) Note that it’s important to take these deductions the same year you pay your property taxes. You can take advantage of this tax savings on both primary home and vacation homes.

3. Capital Gains

Do you have plans to put your home on the market? Sellers can benefit from certain tax deductions, too. If your house sells at a profit, the capital gains—the value of an asset upon its sale—may be tax-free. Limits are up to $250,000 for a single person and up to $500,000 for married couples filing jointly.

There are a couple rules to abide by to enjoy a break from capital gains taxes, however. Sellers must:

  • Have used the home as their principal residence in 2 out of the preceding 5 years.
  • May not have claimed the capital gains exclusion for the sale of another home during the previous two years.

It’s important to know that these deductions can be taken only if you itemize on your taxes—if you opt for the standard deduction, they won’t be valid, so you’ll need to work the numbers to determine which approach makes the most sense. Your tax advisor is the best person to contact about specific tax questions, and our Heartland Bank Mortgage Team is always ready to answer home loan questions or assess your current mortgage situation.

This content is for informational purposes only. Readers should under no circumstances rely upon this information as a substitute for their own research or for obtaining specific advice from their own counsel.

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