Key things to know about taxes and owning a home
Owning a home is a significant financial commitment, and it's important to understand the various taxes that may be associated with it. Here are some key things to know about taxes and owning a home:
Property taxes: Most homeowners are required to pay property taxes on their homes. These taxes are generally based on the value of your home and are used to fund local services such as schools, roads, and police and fire departments. Property taxes are typically paid annually or semi-annually, and they may be escrowed (held in an account) as part of your mortgage payments.
Capital gains tax: If you sell your home for a profit, you may be required to pay capital gains tax on the sale. Capital gains tax is a tax on the profit you make from the sale of an asset, in this case, your home. There are certain exclusions and exemptions that may apply, such as the "primary residence exclusion," which allows homeowners to exclude up to $250,000 in capital gains from the sale of their primary residence (or up to $500,000 for married couples filing jointly).
Mortgage interest deduction: If you have a mortgage on your home, you may be able to claim a deduction for the mortgage interest you pay. This deduction is generally available for mortgages on a primary residence or a second home, and it can be a significant tax savings for homeowners.
Home equity interest deduction: If you have a home equity loan or a home equity line of credit (HELOC), you may be able to claim a deduction for the interest you pay on that loan. However, it's important to note that the tax rules for home equity interest deductions changed significantly in 2018, and the deduction is now only available for certain types of home equity debt used to improve the home or for other specified purposes.
State and local taxes: In addition to property taxes, you may also be required to pay state and local taxes on your home. These taxes can vary widely depending on your location, and they may be based on the value of your home, the size of your home, or other factors.
Understanding the various taxes that may be associated with owning a home is an important part of being a responsible homeowner. If you have questions about taxes and homeownership, it's a good idea to consult with a qualified tax professional or a financial advisor.
