Do you own a home? Here’s how to leverage & save Taxes.

Owning a home is an emotion to many dreamers. They want to call it as a sweet haven and a place of happiness. But buying a home in US is a financial milestone too. Congratulations for achieving this huge milestone. Party hard and come back here to read rest of the post 😄.

Those who achieved this and planning to get there, spend some time to read through the blog post to understand how Buying Home is a strategic tax-saving opportunity. With the IRS rules for 2024, you can claim significant deductions and credits. Below, we’ll explore these benefits with detailed examples to help you maximize your savings.

Key Tax Benefits of Owning a Home

1. Mortgage Interest Deduction

What It Is:

• Well, do you worry that you own significant mortgage loan? Don’t worry, sometimes 'More is Less' too. We will show what do we mean by that. Homeowners can deduct the interest paid on their mortgage loan, up to a debt limit of $750,000 for mortgages taken after December 15, 2017 ($1,000,000 for older loans).

Example:

• Scenario: Emma bought a home in 2021 for $700,000 with a 30-year mortgage at 3.5% interest.

• Interest Paid in 2024: 700,000×0.035=24,500

• Since the loan is under the $750,000 cap, Emma can deduct the full $24,500 from her taxable income, which means that she can reduce her taxable income by $24.5K

2. Property Tax Deduction

What It Is:

• You can deduct state and local property taxes up to a combined limit of $10,000 per year ($5,000 if married filing separately).

Scenario:

• Mike owns a home in Texas with an annual property tax bill of $8,500.

• Since the tax bill is below the $10,000 limit, Mike can deduct the full $8,500 from his taxable income.

3. Home Office Deduction

What It Is:

• Are you Self employed and do you use part of your home exclusively for business purposes, then you can claim a home office deduction as well.

  Two methods to calculate:

  1. Simplified Method: $5 per square foot, up to 300 square feet.

  2. Actual Expenses Method: Deduct a portion of actual costs like utilities, insurance, and repairs.

Example 1: Simplified Method

• Scenario: Sarah uses 200 square feet of her home as a dedicated office.

• Deduction: 200 sq. ft.×5=1,000

• Sarah can claim a $1,000 deduction.

Example 2: Actual Expenses Method

• Scenario: Tom’s home is 2,000 square feet, and his home office is 250 square feet (12.5% of the home). His annual home expenses are:

  • Utilities: $3,600

  • Insurance: $1,200

  • Repairs: $800

• Deduction: 12.5%×(3,600+1,200+800)=687.50.

• Tom can deduct $687.50 using the actual expenses method.

4. Energy Efficiency Tax Credits

What It Is:

• If you have any energy efficient systems like solar panels, wind, turbines and geothermal systems in your home, then you can use energy-efficient upgrades for tax benefits. Homeowners can claim the Residential Clean Energy Credit, which covers 30% of qualifying expenses.

Example:

• Scenario: Karen installed solar panels in 2024, costing her $15,000.

• Tax Credit: 15,000×0.30=4,500.

• Karen gets a $4,500 tax credit, directly reducing her tax liability.

5. Capital Gains Exclusion

What It Is:

• When selling a primary residence, you can exclude up to $250,000 of capital gains if single and $500,000 if married filing jointly, provided you’ve lived in the home for at least two of the last five years.

Example:

• Scenario: John and Lisa bought a home in 2018 for $400,000 and sold it in 2024 for $700,000.

• Profit: 700,000−400,000=300,000.

• Married and living in the home for over 2 years, they can exclude up to $500,000 of gains. Hence, their entire $300,000 profit is tax-free.

Comprehensive Example: Combining Benefits

Scenario: Mark and Olivia, a married couple, bought a home in 2020 for $600,000 with a 30-year mortgage at 4% interest. Their annual property taxes are $9,000, and they use 250 square feet as a home office. In 2024, they also install energy-efficient windows costing $10,000. Here’s how their tax benefits stack up:

1. Mortgage Interest Deduction:

   • Interest Paid: 600,000×0.04=24,000.

   • Deduction: $24,000.

2. Property Tax Deduction:

   • Deduction: $9,000 (below the $10,000 limit).

3. Home Office Deduction (Simplified Method):

   • Deduction: 250×5=1,250.

   • Deduction: $1,250.

4. Energy Efficiency Credit:

   • Credit: 10,000×0.30=3,000

   • Credit: $3,000.

Total Tax Savings:

• Deductions: 24,000+9,000+1,250=34,250.

• Credit: $3,000.

• Overall Tax Benefit: 34,250+3,000=37,250.

Tips for Maximizing Tax Benefits

1. Consult a Tax Professional like Lesser Tax:

   Complex rules like depreciation for home offices or eligibility for credits may require expert guidance.

2. Document Everything:

   • Keep mortgage statements, property tax bills, receipts for home office expenses, and records of energy-efficient upgrades.

   • Lesser helps you build a profile and logs all the documentation evidence you need for tax protection and compliance

3. Bundle Property Tax Payments:

   • If nearing the $10,000 limit, consider prepaying next year’s property taxes to maximize deductions.

   • Store all documents and Lesser helps you build a profile and logs all the documentation evidence you need for tax protection and compliance

4. Plan Renovations Wisely:

   • Combine energy-efficient upgrades in the same year to maximize credits.

   • Learn advantages of renewable energy investing using tax consultants like lesser.tax

Conclusion

Owning a home offers tremendous opportunities to save on taxes. By leveraging deductions for mortgage interest, property taxes, home offices, and energy-efficient upgrades, you can significantly reduce your tax liability.

With proper planning and documentation, you can turn your home into a financial asset that keeps more money in your pocket. Lesser helps you build a profile and logs all the documentation evidence you need for tax protection and compliance.

If you’d like tailored tax planning advice, contact a tax professional or explore our services at lesser.tax. Let’s maximize your savings together!