Don’t Miss These Top 5 Tax Breaks

When you own your own home, you want to make sure you take every deduction possible to ensure that you maximize your tax refund. You might be wondering how items like home improvement, the mortgage interest you paid, taxable income, and itemized deductions will impact this year’s tax bill.

This can get complicated, but we’ve got you covered! Here are some of the most important tax deductions that homeowners can take advantage of.

1. Mortgage Interest 

Here’s one of the main tax benefits of becoming a homeowner: After you buy a home, the interest that you’ve paid on your mortgage for the past year is tax-deductible (if it meets a few criteria).

If you signed up for a mortgage on December 16, 2017, or later, then you can deduct interest on up to $750,000 of mortgage debt. If you obtained a mortgage before that, then you can deduct interest on up to $1 million of mortgage debt.* 

The difference between these dates has to do with the Tax Cuts and Jobs Act. Mortgages that existed before this act went into effect (on December 16, 2017) were grandfathered in under the previous rule. New mortgages had to abide by the revised rule. 

Your loan servicer will send you a tax form (IRS Form 1098) well in advance of the tax filing deadline summarizing how much you paid toward your mortgage’s principal versus the interest portion of your mortgage payments. 

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2. Points

Just as mortgage interest is tax-deductible, so are the discount points you paid to lower your interest rate. If you purchased points as a way of lowering your interest rate, you may be able to deduct these points come tax time. 

Like mortgage interest, discount point deductions are limited for homes that cost more than $750,000. That limit goes up to $1 million for mortgages originated before December 16, 2017.

There are a few more rules on the tax benefits of mortgage points. 

The points can’t be used to finance standalone fees, such as property taxes. And you must have had the funds to purchase the points—these funds can’t be a gift and can’t come from a loan. The amount you paid for points must be itemized as points on your statement. 

You can deduct all your points at once during the tax year when you purchased your home, or you can write off a percentage of your points each year you have your mortgage. 

Points that you purchased for refinancing a mortgage can also be tax-deductible, but only over the life of the loan, not all at once. Homeowners who refinance can write off the balance of the old points and begin to amortize the new points. Loan origination points are not deductible.* 

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3. Home Improvement Loan Interest 

It used to be that if you took out a loan to do some major home improvements, you could deduct the interest paid on that loan. That tax break is no longer available, but many people still wrongly assume that this interest will be tax-deductible.

You can still get a tax benefit from two types of home improvement costs, however. These are home renovations that are considered medical expenses, as well as solar energy installations.

On the medical expenses front, tax-deductible expenses include items like wheelchair ramps, support bars for bathtubs or toilets, doorway modifications, stairway renovations, and warning systems. Essentially, any accessibility item that would make a home safe and inhabitable for someone with specific medical needs will qualify.

The money you pay to install solar energy systems isn’t tax free, but these systems can save you money on your tax bill and your electric bill. Tax deductions can include up to 26% of the cost of installing solar panels, solar water heaters, and all other forms of solar energy.*

4. Property Taxes

You can deduct up to $10,000 in property taxes paid each year ($5,000 if you’re married filing separately), which includes both state and local taxes. 

If you have a mortgage with an escrow account, then the amount of real estate property taxes you paid will show up on your annual escrow statement. 

This doesn’t include transfer taxes on the sale of your home, HOA assessments, payments on loans that finance energy-efficient home improvements, public assessments, or property taxes you have yet to pay.* 

5. Home Equity Loan/HELOC Interest

You now know that you can’t deduct most home improvements—minus solar and medical necessities. But what you may not know is that you can deduct home equity loan and/or HELOC interest if you used home equity proceeds for renovations. 

The renovations must be made on the same home where you tapped the equity. For example, you can’t take out a home equity loan on your primary residence to renovate your vacation home and claim that as a deduction. 

You also can’t take out a home equity loan to simply create an emergency fund (or to use in any other way except improving that very home) and expect to claim that as a deduction.

Taxes, like loan applications, require diligent recordkeeping and often a heap of paperwork. Thankfully, owning your own home can provide some major relief on the tax front, though you want to be sure to review the most recent rules surrounding tax deductions before you file. 

As the Tax Cuts and Jobs Act proves, certain laws and deductions do change over time. Be sure you know about all the tax deductions you have coming your way, while steering clear of old rules that could get you in trouble with the Internal Revenue Service.* 

APM loan officers are not tax professionals, but they do have access to information about what is typically considered an allowable tax deduction as it relates to homeownership. It’s important to talk to your tax professional for specific information for your own unique financial scenario to see if there are tax deductions that you may not qualify for—or others that you may.

*The information provided has been prepared for informational purposes only and is not intended to provide—and should not be relied on for—tax, legal, or accounting advice. You should consult your own tax, legal, and accounting professionals for information specific to you.

Using a Realtor to Sell Your House

Of course, selling your home involves more than just listing it. You’ll want to get your home inspected and ready for viewing. You’ll also need someone to host open houses or at least show the home to potential buyers. What if you have multiple offers? Who will handle those negotiations? And what should the price of your home be?

You can see where we’re going with this. There’s lots to handle when you’re selling your home. Throw in buying another home and moving, and it can be downright maddening.

That’s where real estate agents come in. They know the local market, they’re pros at listing your home, and they know how to leverage multiple offers to get you the highest price or best terms—or both.

Risk vs. Reward

Many people believe going the “for sale by owner” (FSBO) route can save money, since they don’t have to pay agent commissions, which are typically rolled into closing costs. 

This sounds great at face value, but the truth is that you might save a commission but still fail to achieve the highest price when selling your home.

That’s why it’s important to take a few minutes and learn about the realities of selling your home. Then you can decide for yourself whether the risks outweigh the rewards.

How a Realtor Can Help

Here are the top eight reasons a listing agent can help with your home sale:

1. Working with a real estate agent can get you top dollar 

For-sale-by-owner homes don’t sell as quickly … or for as much.

A listing agent is an expert in the local market, as well as current sales data. These are huge benefits when it comes to selling your home.

And here’s the thing: Sales data from popular real estate websites aren’t nearly as reliable as the data that real estate agents can get. Website data can backfire if it inspires you to list your home for more or less than it’s worth in the current market.

Statistics show that on average homes listed with an agent sell for a higher price ($58,000 higher on average according to the most recent NAR research report).

2. Realtors understand the market

Real estate agents have house-by-house, street-by-street, and market-by-market experience. When competition is fierce, they can help you with strategies to buy or sell your home.

3. Working with a real estate agent lowers your risk

When you have an agent, you share some of the risk of home buying and selling. As a seller, you’re paying the real estate agent to assist you, advise you, and help navigate the transaction legally and safely.

4. Listing agents are well-versed in the process

Real estate agents can negotiate more than just price. They know all the terminology and can help negotiate the dozens of sticking points that keep transactions from closing—including repairs, closing costs, timelines, rent-backs, inspection issues, and more. 

They’re also bound by a code of ethics, which means they know what has to be disclosed to a potential buyer—as well as how to disclose it. Their profession also requires that they carry insurance in case something goes wrong.

A homeowner trying to sell on their own is just that: on their own. This can result in money lost if the home sells for less than the price a realtor could have achieved or, even worse, if costly litigation occurs during or after the closing.

5. A listing agent works closely with all parties

The loan officer, title company, appraiser, property inspector, and others all have jobs to do during a transaction. Your average homeowner simply isn’t privy to all the details that must be tracked during the course of a home sale. 

On top of that, there are deadlines and a closing date to keep track of. The legal ins and outs of real estate transactions can make the for-sale-by-owner path tricky for many.

6. Real estate agents can vet potential buyers

A listing agent can require interested parties to get pre-qualified or even pre-approved before viewing your home. This reduces the number of showings (in a good way!), which reduces the burden on you, especially if you’re still living in the home.

You’d be surprised at how many looky-loos—neighbors, community members, people thinking about buying sometime in the future, homeowners who recently bought and want to compare houses, people just driving by—show up when they see a “For Sale” or “Open House” sign! 

Private sellers don’t have the ability to require that buyers be vetted before they tour a home. You don’t want to waste time on a showing—even if it’s with people who want to buy your home—if they aren’t financially qualified to do so.

7. A homeowner can do only so much marketing themselves

Here’s the cold, hard truth. Only 9% of homebuyers find their new homes by calling the number on a sign they see while driving around.

The vast majority find their homes with a real estate agent’s help, since they have access to current and upcoming listings. A real estate professional knows how to market properties successfully through the MLS, but also within their office, on broker tours, and on open houses. 

They are intimately involved in the market daily, in constant contact with other agents, and they can leverage that to get the word out.

8. Real estate agents work for free

As a seller, you don’t pay anything until the transaction closes. That means all the work done upfront—such as marketing, staging, repairing, managing inspections, and paperwork—all get done long before an agent ever sees a commission. 

(If you’re a homebuyer it’s typically free no matter what; all commissions come out of the sale.)

The Bottom Line

When it comes to costs, market knowledge, and negotiation strategy, the benefits of working with a real estate agent are plentiful. Plus, large dollar amounts and legal ramifications often detract sellers from going it alone—and for good reason.

If you’re ready to sell but are unsure where to start, an American Pacific Mortgage loan officer can help. They can connect you with our network of trusted real estate professionals. You can even get pre-approved for your new home at the same time. Talk about two birds with one stone!