Tax Debt Relief

Ultimate Guide to Tax Breaks for New Homeowners

Written by fritzie

Homeownership is important for the U.S. economy, and the government acknowledges its relevance by offering homeowners dedicated tax breaks to make owning a home just a little bit simpler.

The number of homeowner tax breaks stayed relatively the same for several decades. However, the Tax Cuts and Jobs Act of 2017 provided a landmark overhaul of the U.S. tax code and directly impacted tax breaks for homeowners.

Still, there’s an opportunity to get a tax break for buying a house. And more importantly, they’re available for as long as you’re paying the mortgage, so you’ll save every year.

Ready to learn about the best tax breaks for new homeowners? Keep reading to see how much you can save.

6 Simple Tax Breaks for New Homeowners

Do you get a tax break for buying a house? Yes, you do. There are a number of items available for primary residences and new homeowners.

We’ve provided the most common tax breaks for new homeowners including how these deductions were impacted by the recent tax code change.

1. Mortage Interest Tax Deduction

Previously, the mortgage interest tax deduction allowed homeowners to write off the interest costs of their mortgage. It was a politically popular deduction because many considered it to be a way to encourage homeownership by making it more affordable.

Until 2017, homeowners were able to deduct the interest on a $1 million mortgage on both a primary and second property. The new tax law passed in 2017 changed it slightly from 2018 forward. For homes purchased after December 15, 2017, Congress changed the figure to $750,000 for joint filings and $375,000 if you’re married and filing separately.

The change won’t impact homeowners in many parts of the country, but it will hurt you if you’re buying in an expensive state like California. Additionally, the mortgage deduction changes can cause the average homeowner’s tax deductions to drop by $100 in 15 states.

This is because alterations to the mortgage interest tax deduction also impact available deductions available before the tax reform. For example, someone who owns a home at average area price in the Bay Area could lose $100,000 in deductions over the duration of their mortgage.

While few people buy a home with tax implications in mind, the loss of deduction is something to consider if you’re buying in an expensive market like San Francisco or Seattle.

2. Moving Expenses

Until 2018, you were able to deduct some of your moving expenses if you moved to a new home to start a new job.

The new tax law eliminated this option, but it is still worth mentioning here because it remains available for active duty members of the armed forces.

3. Property Tax Deduction

Property tax deductions are another favorite way to ease into homeownership. For states where property taxes are high, this deduction helped relieve a serious tax burden that was otherwise unavoidable.

Previously, all property taxes were deductible. After 2018, the maximum deduction is $10,000 or $5,000 for married couples filing separately.

4. Home Office Deduction

The home office deduction was beloved by the self-employed and small business owners because it allowed them to write off a portion of their mortgage off their taxes when their home workspace met the requirements for a home office.

Despite being appreciated, the home office deduction is also a bugbear because it’s one of the most common excuses used by the IRS for an audit.

It was previously a used and often cited deduction, but it has changed significantly.

It is still true that you must use any office space “exclusively and regularly” as your place of business. Business mail, calls, and clients should be directed to your house or home office.

That means you need to have a room or suite of rooms dedicated to your business. Your kitchen table doesn’t count nor does a desk in your living room. Closet offices don’t count either. Claiming a space deemed to be too large or small for an office is a good way to receive an audit.

To receive the deduction, you’ll deduct the cost of your office against your business income with the Schedule C form.

The bill changed significantly in that employees of companies who worked in home offices were previously able to avail of this deduction. After 2017, only self-employed and businesses can use the deduction.

5. Residential Energy Efficient Property Credit

Energy efficient tax credits are offered to homeowners who invest in clean energy and energy efficiency in their home. Some ways to qualify include:

  • Installing an energy efficient HVAC system
  • Adding new energy efficient windows and doors
  • Choosing energy efficient lighting systems
  • Buying qualified appliances

There are no longer any opportunities to avail of federal tax credits for creating an energy efficient home. Unfortunately, federal tax credits expired on December 31st, 2016. However, lucky homeowners may still find their state offers these tax credits.

Your state’s energy department will likely list these credits on their website. Don’t forget to ask retailers about what appliances or products apply.

6. Home Equity Credit Interest Deduction

The home equity credit interest deduction saw the most significant changes under the new tax bill. Previously, homeowners who took out a home equity line of credit could deduct their interest on a credit line of up to $100,000.

Congress eliminated this deduction almost completely with the tax overhaul. From 2018 onward, only those who use their equity to “buy, build or substantially improve” the property qualify for the deduction.

Tax Write-offs for Homeowners Have Changed

Tax breaks for new homeowners are no longer as favorable as they were prior to 2017. Still, they offer new homeowners the chance to save some money on their income tax over the duration of their mortgage, particularly if you don’t live in an expensive housing market.

Looking for more resources to help you save money on your personal taxes? Click here.

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