Real Estate and Taxes: What Homeowners Need to Prepare forTax Season

Tax season can be stressful, especially for homeowners navigating the complexities of real
estate and taxes. Whether you're a first-time homebuyer, a seasoned homeowner, or an
investor, understanding how real estate affects your taxes is essential to avoid any surprises
when April rolls around. In this guide, we’ll break down what homeowners need to know and
prepare for to ensure a smooth tax filing season.

1. Mortgage Interest Deductions
🏡 What It Is: One of the most significant tax benefits of owning a home is the ability to deduct
mortgage interest. This applies to interest paid on loans for purchasing, building, or improving
your primary or secondary residence.

📊 How It Helps: For many homeowners, this deduction can significantly reduce taxable
income, especially in the early years of a mortgage when most of your monthly payment goes
toward interest.

💡 What to Do:

• Check your Form 1098, which your lender will send you. This form will show how much interest you paid throughout the year.
• Consider working with a tax professional to ensure you are maximizing your deductions if you have a complex situation, like owning multiple properties.

2. Property Tax Deductions
🏡 What It Is: Homeowners can deduct state and local property taxes they’ve paid during the
year. The IRS allows you to deduct up to $10,000 in state and local taxes (SALT), including
property taxes.

📊 How It Helps: This deduction can be especially helpful for homeowners in areas with high
property taxes. However, note that the SALT deduction is capped at $10,000, meaning this limit
applies regardless of how much you paid.

💡 What to Do:

• Keep track of the total property taxes paid throughout the year.
• Consider paying any outstanding property taxes before the end of the year to maximize your deduction.

3. Capital Gains Exclusion on Sale of Your Home
🏡 What It Is: If you sell your primary residence, you may be eligible for a capital gains tax
exclusion of up to $250,000 ($500,000 for married couples filing jointly) on the profits from the
sale. To qualify, you must meet certain ownership and use tests.

📊 How It Helps: This exclusion allows you to exclude a significant portion of your gains from
taxes, which can save you a lot of money when selling your home.

💡 What to Do:

• Ensure you meet the requirements: You must have lived in the home for at least two out of the past five years before selling.
• Keep records of home improvements, as these can be used to increase the home’s cost basis and reduce your taxable profit.

4. Home Office Deduction for Remote Workers
🏡 What It Is: If you work from home and use part of your home exclusively for business, you
may be able to deduct a portion of your housing expenses as a home office deduction. This
could include utilities, insurance, and property taxes.

📊 How It Helps: With more people working remotely, this deduction can help offset the costs of
your home. However, the space must be used exclusively for business purposes.

💡 What to Do:

• Calculate the square footage of your home office and divide it by the total square footage of your home to determine the percentage you can deduct.
• Keep thorough records of expenses related to your home office.

5. Energy-Efficiency Tax Credits
🏡 What It Is: If you made energy-efficient improvements to your home, such as installing solar
panels, upgrading windows, or adding insulation, you may qualify for tax credits. The
Residential Energy Efficient Property Credit allows homeowners to deduct a percentage of the
cost of certain energy-saving upgrades. 

📊 How It Helps: These credits can significantly reduce your tax liability and make your home
more energy-efficient in the long run.

💡 What to Do:

• Keep receipts for all energy-efficient upgrades you’ve made.
• Check with the IRS or a tax professional to see which credits you qualify for and how to claim them.

6. First-Time Homebuyer Credit (State-Specific)
🏡 What It Is: While the federal government no longer offers a first-time homebuyer tax credit,
many states offer their own programs to encourage homeownership. These state-level credits
can vary widely and can offer substantial savings.

📊 How It Helps: If you’re a first-time homebuyer, this credit can help offset closing costs, home
purchase expenses, or even reduce your taxable income.

💡 What to Do:

• Check with your state’s tax authority to see if there are any first-time homebuyer credits available.
• Make sure you qualify and file accordingly to claim any available credits.

7. Home Renovation Costs and Deductions
🏡 What It Is: While home renovation costs are not typically deductible, certain improvements
can add value to your home and be used to offset capital gains taxes when selling.

📊 How It Helps: By keeping track of home renovation costs, you can adjust the cost basis of
your property, potentially lowering your taxable gains when you sell.

💡 What to Do:

• Keep detailed receipts and records of any home improvements.
• Work with a tax professional to ensure you’re properly documenting improvements that will increase your home’s value.

8. Consult with a Tax Professional
🏡 Why It Matters: Real estate taxes can be complex, especially if you have multiple properties
or have made significant improvements to your home. A tax professional can help ensure you’re
taking full advantage of available deductions, credits, and exclusions.

📊 How It Helps: An expert can also help you avoid common tax mistakes and navigate any
changes in tax law that could impact your homeownership or real estate investments.

💡 What to Do:

• Schedule an appointment with a tax professional well in advance of the tax deadline.
• Ask about any new tax changes that may apply to your real estate holdings.

Conclusion: Be Prepared for Tax Season
Real estate taxes can feel overwhelming, but with the right preparation and knowledge, you can
minimize your tax burden and maximize your potential savings. From mortgage interest
deductions to capital gains exclusions, understanding the tax benefits of homeownership is
essential for all homeowners.
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At Hub City Title, we’re here to help guide you through every step of your real estate
journey—from purchase to sale. Contact us today to learn how we can assist with your title
services and ensure your transaction is seamless.