Becoming a homeowner is not just a significant step toward building equity and achieving financial security—it also comes with valuable tax benefits. As a mortgage company, we want to help you understand how owning a home can work in your favor when tax season rolls around. Let’s break down the key tax advantages of homeownership:
1. Mortgage Interest Deduction
One of the most significant tax benefits for homeowners is the mortgage interest deduction. If you itemize deductions on your tax return, you can deduct the interest paid on your mortgage for loans up to $750,000 (or $1 million if you purchased the home before December 15, 2017).
This deduction can result in substantial savings, especially during the early years of your mortgage when interest payments are higher.
2. Property Tax Deduction
Homeowners can also deduct state and local property taxes up to $10,000 per year. This deduction can help offset the costs of homeownership and make your tax burden lighter.
3. Home Office Deduction
If you work from home or run a business from your property, you may qualify for the home office deduction. This benefit allows you to deduct a portion of your home expenses, such as utilities, internet, and maintenance, as they relate to your work area.
4. Energy-Efficient Home Improvements
Making your home more energy-efficient can provide additional tax savings. Federal tax credits are available for installing solar panels, energy-efficient windows, insulation, or other qualifying upgrades. These credits directly reduce your tax liability and contribute to long-term energy savings.
5. Capital Gains Exclusion
When you sell your primary residence, you can exclude up to $250,000 of profit ($500,000 for married couples filing jointly) from capital gains taxes if you’ve lived in the home for at least two of the last five years. This can be a game-changer when it's time to move.
6. Points Deduction
If you paid points (prepaid interest) to lower your mortgage rate when purchasing your home, you may be able to deduct the cost in the year of purchase. This provides another upfront saving for new homeowners.
7. Home Equity Loan Interest Deduction
If you take out a home equity loan or line of credit (HELOC) for home improvements, the interest may be deductible if the funds are used to improve, build, or buy your home.
Illinois Specific Tax Benefits
Property Tax Deduction
Illinois has some of the highest property taxes in the country, but there’s good news: you can deduct up to $10,000 of state and local taxes (SALT), which includes property taxes, on your federal tax return if you itemize.
While this deduction is capped under current federal tax law, it still provides substantial savings for Illinois homeowners.
Property Tax Relief
Illinois offers several programs to help homeowners save on property taxes:
Energy Efficiency Tax Credits
Homeowners in Illinois can take advantage of federal tax credits for energy-efficient upgrades, such as installing solar panels, energy-efficient windows, or a new HVAC system. These credits lower your federal tax liability and reduce energy costs over time.
Additionally, Illinois offers state-level solar incentives, such as the Adjustable Block Program, which provides rebates for solar installations.
Capital Gains Tax Exclusion
When you sell your primary residence in Illinois, you can exclude up to $250,000 in profit ($500,000 for married couples filing jointly) from federal capital gains taxes if you’ve lived in the home for at least two of the last five years.
This can be a significant benefit when it’s time to upgrade or downsize.
Homeownership is an investment in your future, and the tax benefits can make it even more rewarding. However, tax laws can be complex and vary by individual circumstances, so we always recommend consulting a tax professional to maximize your deductions and credits.
Ready to take the next step toward homeownership? Contact us today, and let’s explore how you can benefit financially and start building equity in your dream home.
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