Home ownership is part of the American dream … but so is financial stability. Thankfully, the two can complement each other when it comes to tax time. Tax planning is critical and understanding the rules and how they apply to you is where our team of dedicated tax experts can help. If you are a homeowner, here are four tax breaks you can take advantage of when building, buying, or improving your home.

1. Home mortgage deduction

The home mortgage interest deduction is the first place you can find a home ownership tax break. With this deduction, you can count interest you paid on a loan related to building, buying, or improving a home, and put it towards your total itemized deductions. If your deductible mortgage interest, in conjunction with other itemized deductibles, is greater than the standard deduction for that specific tax year, this can be a useful strategy.

The standard deduction is based on how your tax returns are filed and may be exceeded by itemized deductions. If you determine itemizing is a good option for you, it is important to capture mortgage interest as this will lower the amount of taxes you’ll owe. You can legally itemize mortgage interest for two personal residences.

2. Settlement costs

When you purchased your home, you paid ‘settlement’ or ‘closing costs’ in addition to the contract price. These costs are usually divided between you and the seller on the sales contract. If you built your home, these costs were probably paid when you bought the land or settled on your mortgage. To prepare for this deduction, bring your closing statement and Form 1098 from your mortgage company to your tax accountant. You can also deduct certain property taxes the year you buy your home if you itemize.

3. Real estate

Real estate taxes are annual taxes homeowners pay on the assessed value of a home. When you itemize, you can deduct property taxes from your main residence and any other real estate you own. This is combined with state tax and usually referred to as SALT (State and Local Tax). SALT does have a cap, and it is important to know the cap amount based on the year you are filing. Check Schedule A – Itemized Deductions for details.

4. Sale of personal residence

After you have lived in your primary residence for two or more years, you are exempt from capital gains tax up to $250,000 filing single and $500,000 filing jointly. This allows you to shelter the appreciation on your home, build equity and apply it into a new home, or invest it without paying income tax on the gain.

Our team of experts are happy to help you secure your dream home – and your dream tax deductions! Don’t hesitate to reach out to your local GreenStone branch to learn more.