Tax Advantages from Home Ownership

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Jul 16, 2021

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A major advantage in home ownership is the available interest deduction on the home mortgage and home equity loan. Although personal interest is not deductible, interest on acquisition debt and home equity debt is generally deductible, but subject to limitations.

Property Loan Interest Deduction

To qualify for an income tax deduction on interest paid for a loan secured by the property, the homeowner must meet the following criteria:

(1) “Acquisition indebtedness” incurred in acquiring, constructing or substantially improving a qualified residence secured by the residence, is subject to a $1,100,000 aggregate loan amount limitation.

(2) “Home equity indebtedness” (other than “acquisition indebtedness”) secured by a qualified residence to the extent that the amount of the loan does not exceed the fair market value of the qualified residence reduced by the amount of the acquisition debt, is subject to a $100,000 aggregate loan amount limitation.

(3) “Qualified residence” means the homeowner’s principal residence and one other residence (such as a vacation home) that is not rented to others.

Deductible Property Taxes

Deductible real estate taxes include any state, local, or foreign taxes on real property levied for the general public welfare. The taxes must be based on the assessed value of the real property and be charged uniformly against all property under the jurisdiction of the taxing authority. Deductible real estate taxes generally do not include taxes for local benefits, trash and garbage pickup fees, transfer taxes, homeowners’ association charges, and rent increases for higher real estate taxes.

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