Tax Benefits of Buying, Owning and Selling a Home

Uncle Sam wants you to own your home. The tax code grants tax benefits that reduce your costs of buying, owning, fixing up and selling a home. Here are brief descriptions of tax benefits of owning a home — the deductions, the credits and an exclusion that encourage homeownership.

Tax benefits of buying a home

The tax code sets aside a couple of benefits for buying a home.

Mortgage points: With the exception of very large loans, you may deduct the points you paid when you got your mortgage. In some cases, you may deduct the entire amount in one tax year; in other situations, you may deduct the points equally each year over the life of the loan.

» MORE: Mortgage discount points: What you need to know

Moving expenses: Tax breaks for moving expenses are limited. Only active-duty members of the armed forces are allowed to deduct moving expenses. The move must be because of a permanent change of station due to a military order.

Tax benefits of owning a home

There are plenty of tax benefits for owning a home. They're the tax code's gift that keeps on giving.

Mortgage interest deduction: The mortgage interest tax deduction is designed to make homeownership more affordable by reducing your tax bill. There are limits on the deduction, depending on how much you borrowed and when you bought the home.

» MORE: Tax deductions for homeowners

Use NerdWallet’s mortgage interest deduction calculator to find out what this tax break means for your next mortgage.

» MORE: Itemized deductions: What they are and how they slash taxes

Property tax deduction: The IRS lets you ease the pain of paying property and other state and local taxes. You may reduce your taxable income by up to $10,000 ($5,000 if married filing separately) in deductible property taxes, state and local income taxes, and sales taxes that you pay.

» MORE: When home equity debt is — and isn't — tax-deductible

Home equity debt: Interest paid on home equity debt may be deducted only if the money is used “to buy, build or substantially improve the taxpayer’s home that secures the loan,” according to the IRS. So the interest is deductible if the equity debt is used to, say, put an addition on a home. But it’s not deductible if the debt is used to pay off credit card debts or to buy a vacation home.

» MORE: How much is my house worth?

Home office expenses: You may deduct expenses for your home office if you're self-employed and you use part of your home exclusively and regularly as your principal place of business or to meet clients and customers.

» MORE: Self-employment tax deductions

Renewable energy tax credits: You can claim a tax credit on the costs of buying and installing items that generate electricity using the sun, the wind or fuel cells. The credit is also available for solar water heaters and geothermal heat pumps.

Medically necessary home improvements: When calculating deductible medical expenses, you may include the cost of home improvements or installation of medical equipment in your home. The equipment or improvements must benefit you, your spouse or dependents who live with you.

» MORE: How to claim medical expenses on your taxes

Mortgage credit certificate: Some state housing finance agencies offer mortgage credit certificates through their home buyer programs. The certificates bestow a credit on your federal tax bill of up to $2,000 a year. This is a credit, not a deduction — you can use the credit to cut your taxes, even if you use the standard deduction and don't itemize.

Tax benefit of selling a home

When you sell a home, the capital gain is the difference between the price you paid for it and the price you sold it for. This capital gain is treated as taxable income. The tax benefit comes in the form of an exclusion that lets most sellers avoid paying this capital gains tax.

Capital gains: If you owned the house long enough, you’re allowed to exclude up to $500,000 of this capital gain as income so you don’t have to pay federal income tax on it. (The exclusion is capped at $250,000 for married taxpayers filing separately.)

» MORE: Selling your home? Avoid taxes on capital gains