Most people are aware of the costs involved in both buying and selling real estate. For buyers, your major costs are going to be your down payment and the closing costs that are associated with your home loan. For sellers, there are also closing costs including real estate agent commissions and tax stamps. The good news is there can be some great savings when it comes to tax deductions for both sides of the transaction. Here are some details for each scenario so that you can make sure you are taking full advantage of your options.
Tax Deductions for Home Buyers
- Mortgage Interest – Some limits may have changed recently, but deducting mortgage interest in some capacity is still a viable savings. For a vast majority, this will include nearly all of it. Especially in the earlier years of your loan, this can be a sizable deduction.
- Private Mortgage Insurance – Homeowners that have less than 20% equity in their homes are required to have private mortgage insurance or “PMI.” Depending on your income, PMI is typically a tax deductible item.
- Home Equity Loan Interest – Before you put a large home improvement project on a credit card, consider a home equity line of credit or HELOC. Just like interest on your mortgage, this is very similar where you can deduct the interest on your taxes.
- Property Taxes – Your property taxes are typically deductible and this holds true for your second home as well should you own one. In the interest of saving on your actual tax bill, check to see if you qualify with your town’s exemptions. Bcpa.net is a great resource for Broward County properties.
- Points – Mortgage points can be great as some buyers choose to buy down their interest rate this way if they anticipate being in their new home for many years. Be sure to include any points you have purchased on your taxes for a savings.
- Energy Upgrades – For select energy improvements, there are tax credits available. Things like solar panels, solar water heaters and the like often have credits available. Check with your accountant for the upgrades that are currently offering the most incentives.
Tax Deductions for Home Sellers
- Closing costs – Some of the costs related to the sale including legal fees, escrow fees, advertising costs, real estate agent commissions and even home staging fees can all be deducted on your taxes.
- Mortgage interest – You can deduct the interest on your mortgage (up to a max of $750,000) for the portion of the year that you have owned your home.
- Home improvements – Any repairs made within 90 days of closing can be deducted if they were done to make the home more marketable. Remember to save your receipts!
- Capital gains – This is more of an exclusion rather than an actual deduction, but if you have lived in your home at least two of the past five years, you can exclude up to $250,000 of capital gains on your property or up to $500,000 if you are married.