There are a lot of benefits to owning your own home in California—control over paint color and flooring, building up financial ownership or equity, and pride of ownership, to name a few. But did you know that there are benefits to you each April when you file your income taxes? That’s right! Owning a home comes with tax benefits that may apply to you.
If you are like most Americans purchasing a home, you probably plan on financing that purchase through a bank or credit union in the form of a mortgage. You borrow money from the bank to purchase the home and agree to pay it back over a specified time, often 30 years, along with a percentage in interest. This is how the bank makes their money and why they are willing to give you some now. The amount that you pay in interest can be deducted, or subtracted from your overall annual taxable income, when you file your taxes. You must itemize your tax deductions instead of taking the standard deduction. Consult your CPA to decide which option works best for you.
Selling your home
If you are planning to sell your home, you probably hope to do so for more than you purchased it. That difference, also called a capital gain, is taxable so a portion will go straight to Uncle Sam when you sell your house. However, if you used the home as a primary residence for 2 out of the last 5 years, you can be exempt from paying those taxes on up to $250,000, if filing single, or $500,000 if married and filing jointly. Taxes are complicated, so it is always best to consult with a CPA who is familiar with the tax code that relates to your specific state and situation. But know that home ownership comes with tax benefits that you should explore!