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4 tax benefits of home ownership

what are the tax benefits of home ownership
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Did you know? You may be able to deduct more than you think when it comes to homeownership and your tax bill!

3. Non-taxable gains

If you sell your home, there are certain situations where the profit you make from the sale of your home can be non-taxable.This caps out at $250,000 in profits for an individual and $500,000 for joint filers. To be able to claim the profits on the sale of your home as non-taxable, the following criteria must be met:

  1. The home must be the taxpayer's principal residence.
  2. The home must have been the principal residence in at least two of the preceding five years.
  3. The taxpayer must not have claimed this income exclusion for the sale of a different home in the last two years.

4. Home improvements

While you aren't able to deduct the amount you spent on home improvements in the year you spend the money, you should still save relevant receipts. When you ultimately sell your home, some of these costs can be added into what's known as the "cost basis" of your home.

For example, if you purchased your home for $300,000 and then spent $25,000 on substantial home improvements, the "cost basis" of your home (for tax purposes) would be $325,000. This is significant because the capital gain you make from selling your home is calculated by subtracting the "cost basis" (what you paid for your home plus what you spent on improvements) from the amount you sell your home for. These receipts could save you money if you make a sufficiently large profit from your home sale to potentially owe capital gains tax.

These home improvement expenses added to the cost basis must add to the value of the property.6 Examples include kitchen upgrades, the addition of a new room, or large landscaping projects.

This article is not meant to provide tax advice. For tax advice specific to your situation please see a CPA in your locality who can work through your individual circumstances.

Important Disclosure Information

This content is general in nature and does not constitute legal, tax, accounting, financial or investment advice. You are encouraged to consult with competent legal, tax, accounting, financial or investment professionals based on your specific circumstances. We do not make any warranties as to accuracy or completeness of this information, do not endorse any third-party companies, products, or services described here, and take no liability for your use of this information.

  1. IRS.gov, "IRS provides tax inflation adjustments for tax year 2019," November 18, 2018. Accessed October 25, 2019. Back
  2. IRS.gov, "Interest on Home Equity Loans Often Still Deductible Under New Law," updated June 28, 2019. Accessed October 29, 2019. Back
  3. IRS.gov, "Home Mortgage Interest Deduction," (for use in preparing 2018 returns). Accessed October 29, 2019. Back
  4. IRS.gov, "With new SALT limit, IRS explains tax treatment of state and local tax refunds," published March 29, 2019. Accessed October 29, 2019. Back
  5. IRS.gov, "Topic No. 701 Sale of Your Home," updated August 23, 2019. Accessed October 29, 2019. Back
  6. IRS.gov, "Selling Your Home," (for use in preparing 2018 returns). Accessed October 29, 2019. Back