Dahl Custom Homes | Are You Taking Advantage of These Homeownership Tax Benefits?
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Are You Taking Advantage of These Homeownership Tax Benefits?

Homeownership is the American Dream, and for good reason! When you own a home, you have a space that’s totally yours. No more contacting a landlord to get approval for a paint color! And, then there are the obvious financial benefits, including some significant tax benefits!

Of course, everyone’s circumstances are unique, so be sure to speak with your accountant to ensure you are receiving all applicable deductions. Let’s start with the basics. There are two areas where homeowners can usually save a substantial amount of money.

Interest expense

  • Homeowners can deduct interest expenses on up to $750,000 of mortgage debt from their income taxes, though when they itemize these deductions, they forgo the standard deduction of $12,000 for individuals or married couples filing individually, $18,000 for head of household and $24,000 for married filing jointly.


Capital appreciation

  • While the home increases in value during ownership, these gains are not taxed at the federal level & then homeowners can exclude up to $250,000 in home appreciation when figuring their capital gains.


Interest on a Home Improvement Loan

  • Homeowners are able to deduct interest on home improvement loans of up to $750,000 (per changes in the tax code that went into effect in 2018). Given there are many loan types for improvements, talk to your accountant prior to securing a loan to ensure you’re selecting the best option.


Home Office Deduction

Do you use a portion of your home to operate your own business? If so, you may have another home-related tax deduction! Here are the two common scenarios for qualifying:

  • Part of your home must be used exclusively and frequently as either your principal place of business or a place where you meet and deal with customers or patients.
  • A portion of your home is used consistently to basis store things related to your business, including product samples or inventory.


Property taxes

  • On your Form 1040, you can deduct up to = $10,000 for both individual and married couples. Please note though, if you have money being held in escrow for property taxes, you cannot use this deduction until the money is taken out of escrow and paid.


Selling Costs

  • If you sold your home, you may be able to lower your income tax based on the amount of your selling costs, including things like home repairs, title insurance, inspection fees and more. The only caveat is that repairs must be made within 90-days before your home is sold and that they were made with the sole intention of increasing the home’s marketability.  
  • Also, your selling costs can be deducted from the gain on the sale of your home. This number can be calculated by taking your home’s selling price and subtracting the closing cost as your tax basis. You’ll want to speak with your account in further detail to ensure you’re using the correct numbers.


Mortgage Tax Credit

  • This tax benefit may vary from state to state, but in Iowa the program can save Iowa home buyers up to $2,000 on their federal taxes, every year for the life of their loan. The program typically provides a tax credit valued at 50% of the annual mortgage interest paid and is available annually as long as the home remains the home buyer’s primary residence.

We hope that these tips help you as you start prepping your financial documents for your tax filings this year. Again, be sure to speak with your accountant to make sure that you are optimizing all available, applicable deductions based on your circumstances.

And, of course, if you have any questions about building a custom home in Marion, Cedar Rapids or the Iowa City Corridor, please contact us. It’d be our pleasure to answer any questions that you might have.

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