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Home ownership comes with many benefits, including tax advantages. Here are a few ways that owning a home can save you money.

Mortgage Interest Deduction

When you take out a loan to buy your house, you get a deed of trust (mortgage), requiring you to make monthly payments to a bank or other lender. Usually, part of your payment reduces the principal (the original sum you borrowed) and the rest goes toward interest (the amount the lender charges). Generally, in the early years of a home loan, you pay more interest than principal, and that interest portion is tax deductible. You can reduce your state and federal income taxes by as much as 45 percent of the interest payment, depending on your tax bracket.

There are some limitations, of course. The mortgage must be an “acquisition mortgage,” that is, one that allowed you to acquire or improve the property, and the interest deduction can only be used on the interest paid on up to $750,000. Let’s say you bought a house recently with an interest rate of 7 percent and a loan amount of $1,000,000. You can deduct the $52,500 you paid in interest on the first $750,000 of the loan.

Another limitation to consider is whether the interest deduction combined with all your other itemized deductions adds up to less than the standard deduction ($25,100 for married couple). If so, you’ll just take the standard deduction. If not, you’ll want to itemize your tax return. Talk to your tax professional to see where you fall.

Property Tax Deduction

Another item you can claim on the itemized deduction list is up to $10,000 worth of property taxes. Like the mortgage interest deduction, you must get above the standard deduction threshold before benefiting from this tax benefit.

Home Office Deduction

If you are a homeowner and you qualify for having a home office, you may be able to deduct the cost of that office from your income taxes. Strict rules apply. To be fully deductible, the home office must be dedicated to work (generally, it cannot also be your den or bedroom). Visit selzerrealty.com/mendocino-county-real-estate-blog and search “home office” to learn more on this. Home offices are a frequently overlooked deduction that can yield tremendous rewards, but there are lots of hoops to jump through.

Energy Efficiency Upgrades

Some home improvements that make your home more energy efficient qualify for tax credits or deductions, such as adding a solar energy system. Qualification for tax benefits vary by state and local jurisdiction, and they often come with tight deadlines, so if you’re thinking about an upgrade, check the regulations in your area and talk to your tax professional.

Home Improvements for Your Golden Years

Did you know that if you spend more than 7.5 percent of your adjusted gross income on home improvements that are deemed medically necessary, you can write them off? It may be worth waiting until your income drops to start these upgrades because it is easier to reach the 7.5 percent threshold if you don’t make very much money. (Of course, this also shrinks the benefit of the tax deduction.)

So, if you’re planning to retire next year, consider holding off on those wheelchair access improvements such as widening doorways, lowering cabinets and light switches, or installing a stair lift. To ensure you’ll get the tax deductions, ask your medical professional to document the need for the upgrades—to explain in writing how these improvements are essential to your health and safety—and talk with your accountant. These deductions could add up to significant money.

If you have questions about property management or real estate, please contact me at rselzer@selzerrealty.com or call (707) 462-4000. If you have an idea for a future column, share it with me and if I use it, I’ll send you a $25 gift certificate to Schat’s Bakery.

Dick Selzer is a real estate broker who has been in the business for more than 45 years.