7 Amazing Tax Benefits of Owning a Home in 2023

tax benefits of owning a home is the topic of today's video because certain homeowner tax advantages are rarely taken into consideration when people are trying to decide whether or not to buy a home and they're often overlooked even by existing homeowners as well and look i don't want you to miss out on some of these amazing tax advantages so in this video what i want to do is cover home renting versus home ownership the tax benefits of owning a home and how they work as well as some math and calculations along the way so if all that sounds good to you then please do us a huge favor by clicking the like button for the youtube algorithm so other people like you can find this video and learn about some of these major tax benefits of owning a home stay tuned [Music] hey there and if you're new welcome to our channel i'm sean with life accounting the accounting company that helps you save on taxes and build more wealth and look if you like the sound of that then hey what kind of house is that okay let's go ahead and set the stage with number one renting versus home ownership so i've been a renter for all of my adult life and i thought i would continue to because as an entrepreneur instead of putting my savings and cash into something like a down payment for a house i would instead use my cash to make more aggressive investments that would appreciate faster than a primary residence because historically at least home prices have appreciated on average three percent per year but you definitely can get a higher return by investing in things like real estate properties or even stock market index funds and my personal favorite your own business and believe it or not i actually invested in rental properties before i even considered owning a home because of the mathematical returns for example if i had 100 000 cash invested into a down payment or overall equity in a home at a three percent growth rate then i would have two hundred and forty five thousand six hundred and eighty four dollars in thirty years on the other hand if i use my hundred thousand dollars cash to invest in stocks with a ten percent annual growth rate then i would have one million nine hundred and thirty eight thousand seven hundred and forty dollars in 30 years so it would be easy to see that over a long term investing horizon that investing into stocks or really anything with a higher annual growth rate would produce a greater return than simply having a primary residence now i know someone is already saying this okay and i get it 2020 and 2021 had much higher appreciation for homes averaging 20 price growth but some people think home values will decline and i'm curious okay do you think there will be a housing crash or some type of housing slowdown please tell me in the comment section below and if enough people share then i'll consider making a video with my own personal opinion as well now all that being said i want you to know that i consider myself to be a very financially disciplined person like i am very calculated when it comes to money so i'm comfortable taking on more risk with my cash but here's the truth okay one of the major benefits of owning a home is that it is considered to be one of the safest investments for most americans who may not consider themselves to be savvy financial investors because owning a home is still an asset in the sense that you are building equity in something that will likely appreciate in value over time which is basically the main concept for any other private or public investment and sometimes the smartest investment that you can make is within yourself and within your family which is why i am currently in the process of buying and building my first home right now so then let's get into the tax benefits of owning a home starting with number one energy tax credits now there were a number of changes to the tax code for homeowners that took effect in 2019 and remain in effect for 2022 which were to incentivize homeowners to make energy efficient home improvements by the way of offering tax credits to offset the cost of some of these improvements now tax credits are especially valuable because they reduce the tax you owe dollar for dollars so if you get a one thousand dollar tax credit then you owe one thousand dollars less in taxes whereas if you got a one thousand dollar tax deduction your tax savings would be based on your marginal tax rate for example if your marginal tax rate was 24 then you would save 240 dollars now for 2022 there are three energy tax credit home improvements that qualify which are solar panels geothermal heat pumps and small wind turbines let's quickly talk about all three so you can get an energy tax credit when you install number one solar panels on your house which collect energy from the sun and convert that energy into electricity that powers your home now when it comes to some basic eligibility requirements this credit can be applied to both primary and secondary homes it can be used for existing homes or new construction however it must not be used for a rental property the second energy tax credit is for when you install geothermal heat pumps and when you install these you are using the earth's natural heat from the ground instead of using outside air to provide heating for your home and the basic eligibility requirements for geothermal heat pumps are the same for solar panels as well then lastly you have the small wind turbine tax credit which uses kinetic energy from the wind and converts that energy into electricity that once again powers your home now for all three of these energy tax credits you have a deadline because the tax credits have already started to window down from 30 of your installation costs to 26 and it will go from 26 to 22 by the start of 2024 and it can be completely over after that if congress decides not to renew the credits going forward so i'll go ahead and put an exact schedule on the screen and you can pause it here to digest it if you'd like to all right moving on to the second tax benefit for homeowners number two using section one two one exclusions so anytime you make money from something uncle sam usually wants their cut of the profits and this is true even when you sell your home and on many investments like real estate these are reported as capital gains and when you have capital gains many people also have capital gain taxes however with section 121 exclusion you don't have to pay any capital gains taxes on your first 250 000 in profits with a single filing status or up to 500 000 in profit with a married filing jointly status and with this you'll also want to keep any receipts associated with maintaining or improving your home as this could allow you to reduce your home's cost basis as well for example if you are single and you sold your home for 300 000 profit then you will be able to use section one two one to exclude two hundred and fifty thousand dollars profit on that sale which means you still have a fifty thousand dollar capital gain however if you have fifty thousand dollars in qualified home improvement costs then you could use that to reduce your home cost basis and have a zero dollar capital gain and so when you start factoring in hey you could be saving 100 000 or more in taxes than the roi of owning a home starts to become a little bit more attractive especially if you think in retirement that you may just want to rent instead of taking care of a home in your older age okay moving on to the next tax advantage of owning a home i have number three the home office deduction so as long as you are self-employed and you have some kind of side hustle or business then you can take advantage of the home office deduction now to be fair you can use the home office deduction regardless of if you own a home or if you rent a home or even if you rent an apartment however i want to call this out as a benefit because one of the requirements for the home office deduction is that your office must have a dedicated space typically you would see this in the form of a spare bedroom or a den or a basement garage attic or some kind of unused living room well when you own a home that usually gives you more space and thus you have more square footage that you can allocate to a home office and the home office deduction is primarily based on either a the square footage of your home office multiplied by five dollars or b the square footage of your home office divided by the total square footage of your home multiplied by the percentage of your total qualified home cost so basically the benefit here of owning your home is with the expanded amount of square footage that you can use for your home office now my next tax benefit may be more of an advantage first than a tax benefit second which is number four rent out a portion of your home so for all the parents out there with adult kids what you can do is create a legitimate lease and allow your son your daughter your nephew or your uncle to rent from you and then write off rental expenses related to your home however these expenses must be proportionate to the space in your home that you are renting out for example if you are renting out 10 of your home's total square footage then you may only deduct 10 of something like your homes repairs or your home maintenance costs for example now the key phrase that i used earlier was legitimate lease because if you do allow your family to rent out a portion of your home then you need to make sure you actually enforce the lease otherwise it may not be valid and the irs puts a lot of emphasis on the fact that it must be rented out at fair market value so you don't want to offer really steep discounts on your rent either because if you fail to enforce your lease and fail to enforce a fair market value then the irs could see what you're doing as a gift and at that point you could be subject to gift taxes which means that things totally flip on you to the point where instead of you reducing your taxes you're actually increasing your taxes because now you have these gift taxes now let's move on to tax deductions for homeowners with number five writing off mortgage interest property taxes and insurance so as the title of this part implies of course what you can do is write off your mortgage interest payments your mortgage insurance and your property taxes if your state has them now it's very important to note that you cannot deduct the actual mortgage payments but rather only the interest payments on the mortgage but many people already know that so what i want to do is briefly touch on the reality of taking these tax write-offs within your home because in order to write off mortgage interest and insurance and property taxes you need to do something called take itemized deductions which is something you usually only want to do if your itemized deductions exceed the standard deduction which is given to everyone for example for the 2022 tax year the standard deduction for a single filing status is fifty dollars and for the married filing jointly status it is twenty five thousand nine hundred dollars so if your only itemized deductions are your home expenses then you would need to exceed those standard deduction amounts which for home loans under 1 million dollars that is probably going to be very difficult to achieve at these very low interest rates which at the time of this video is around four percent so in other words these tax deductions for homeowners are only useful for a few people with high value homes unless you are taking other itemized deductions which by the way i have an entire video breaking down individual tax write off with a list of itemized deductions so i'll link that video at the end so you can watch that after you finish this one okay let's talk about another specific tax deduction for homeowners number six medically necessary home improvements you may qualify for a medical expense deduction if you install special equipment in your home for medical reasons for example if you are installing or improving things in your home such as adding ramps for something like wheelchairs or widening doorways or installing handrails or lowering cabinets or even installing elevators then the cost for these improvements and the maintenance they're after can be deductible as medical expenses as long and this part is very important as long as it is medically necessary whether that is for you or another member of your household because simply making your house more elderly friendly won't qualify and since this is a medical deduction it is subject to a limitation where any medical expenses you deduct must exceed 7.5 percent of your adjusted gross income before the deduction starts to kick in all right next let me quickly mention number seven moving expenses because if you are in the military then you are likely moving a lot so what you can do is deduct moving expenses as long as you are on active duty and were not reimbursed for expenses involved with transportating and storing household and personal items and then travel and lodging from your old home to your new home okay before we wrap up it is very important to note that even though the tax benefits of owning a home are awesome especially if you are buying a big house or you are self-employed that doesn't mean that you should rush and go out and buy a home there are still many other factors to consider such as the current market conditions or your own level of financial discipline and risk tolerance and if you are a savvy investor if you can get a greater financial return elsewhere or if you will even enjoy owning a home because it can require a lot of work as well now i am personally looking at buying a home because look i'm married i may be having kids soon and providing some financial security and stability is something that i am now willing to invest in whereas when i was single i couldn't even imagine buying a home because i wanted to take on more risks i wanted to invest more and i wanted more business growth all right well i hope you enjoyed my perspective in some of these tax benefits of home ownership today coming up next i have two more videos that you may enjoy as well so make sure you check those out if you haven't already and i'll see you over there

Channel: LYFE Accounting

Views: 14,447

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Id: tqj2n9BWED4

Length: 15min 59sec (959 seconds)

Published: Fri Apr 01 2022