Homeowners: tax season is upon us again! As you file, remember that ownership is eligible for tax benefits! For new owners, it pays (literally) to remember that as a homeowner you now qualify for benefits you did not qualify for as a renter.
First and most important: homeowners build wealth in equity over time. Obvious, yes, but also a key differentiator from the rental market and tax designation of your investment. Over the years, what you owe decreases, and your equity builds. While renting may seem more affordable in the short-term –we all know we’re ultimately paying for someone else’s home. The IRS recognizes your investment provides owners unique benefits:
- You have the benefit of tax deductions on your home equity lines or the interest you pay on your home equity loan. If you have credit card debts, these can be shifted to your lower-interest home equity loan as well and you can receive the deduction on interest from these payments, too. And let’s face it, as not everyone is good at budgeting or saving in a separate account every month, a mortgage that builds equity every month for you is the same as building a savings without having to do any extra work.
- Should you decide to upgrade your home to be more energy efficient with things like insulation, replacing your water heater, or energy efficient air conditioning, you also may be eligible for an energy credit on your taxes. This credit is 30 percent of the cost of qualified energy-efficient home improvements (with other maximum limitations based on the type of improvement) and could save you a lifetime credit of up to $500.
CAP Management understands and implements environmental sustainability initiatives with some of the HOAs we serve. Conserving natural resources and HOA resources makes financial sense, plus it’s the right thing to do. We encourage owners to do the same in their homes. Costs in the first year are partially offset by the credit, and reap savings for years down the line.
- Should you decide to sell after living in your home for more than two years, you qualify for a Capital Gains Exclusion. Under this exclusion you keep profits up to $250,000 (if you are single), or $500,000 (if you are married). You won’t owe any capital gains taxes on the amounts. With housing prices on the rise in Colorado, it may make sense to invest in a home that has the potential to build wealth while you enjoy a community you truly love.