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Can I Write Off the Cost of Purchasing a Home?

Purchasing a home is a big achievement in one's life, signifying a milestone of financial success and pride in owning your own space. For freelancers, buying a home adds another layer of complexity. Beyond the emotional and practical aspects, homeownership introduces tax implications that can significantly impact one's financial standing.

Most expenses you pay when buying a home aren't deductible, but tax credits and deductions are a great way to lower your tax bill. Understanding which tax deductions and tax credits you can take will help you get the most advantages in this major life decision.

Is the actual home cost tax deductible?

Unfortunately, no. You can’t deduct the cost of your home, but it sure would be nice if that were an option! Some home-related costs are tax deductible, but you can't deduct the purchase price of your home.

First, it's important to understand the difference between a tax credit and a tax write-off. A tax credit directly reduces your tax liability and is a dollar-for-dollar reduction. Tax deductions lower your income, which is subject to taxation.

You'll need to itemize your deductions on Schedule C when claiming home-related deductions. You can take the standard deduction or choose to itemize with tax credits. The choice is up to you, and you should choose whatever option gives you the most tax savings.

Mortgage interest

If filing a joint tax return, you can write off the mortgage interest paid on the first $750,000 that you paid on your mortgage debt. If filing separately, $375,000 is deductible. The home must meet certain qualifications, including:

  • The house services as a security for the loan
  • The home has a kitchen, a place to sleep and a bathroom
  • The property is a house, condominium, apartment, mobile home, trailer or houseboat

If the house was purchased before December 16, 2017, you can deduct the interest paid in the year on the initial $1 million of the mortgage.

Home office

If you’re self-employed and work from home, you can write off your home office as long as it’s your primary place of business and used exclusively for your business. An easy way to write off your home office is to multiply the square footage of your home office by $5. The IRS sets the prescribed rate each year.

Property taxes

Taxes on a property are typically deductible if the home is for personal use and the deduction is itemized. You can deduct up to $10,000 for local or state property taxes. If you pay taxes on a rental or commercial property, those taxes aren’t deductible.

Capital gains

If you sell your home for more than the purchase price, that’s a capital gain. If you have owned your home for at least two of the past five years, you can keep some of the profits on your home, meaning you won't need to pay taxes on the gain up to a certain amount. The cap is $500,000 for couples filing jointly, and $250,000 for couples filing separately.

Home improvements

Home renovations and capital improvement projects, like a new water heater or roof, are tax deductible. Capital improvements prolong the home and add value or enhance it. All the costs associated with the improvement are deductible. Home repairs, like a new paint job or new curtains, typically aren't tax deductible.

Home equity loan

This is essentially just another home mortgage and any interest paid towards this loan is tax deductible. The catch is that you only write off the interest if the loan was used for a home improvement project.

Energy tax credits

Home improvements qualify for two tax credits, including the Energy Efficient Home Improvement Credit and Residential Clean Energy Credit.

Some energy-related home improvements eligible for a deduction include:

  • Exterior windows and doors
  • Electric or solar panels
  • Natural gas
  • Hot water boilers

Not every home expense is tax deductible, so it’s best to check with a CPA to see if what  qualifies for a deduction.  

Infographic entitled Non Deductible Home-Related Costs listing different costs that cannot be written off as a part of a home tax deduction.

Managing home-related tax deductions and credits can be a lot of work. But with FlyFin, all your tax-related needs are managed all in one place. A.I. helps you find every possible deduction and CPAs are always available to answer any tax questions and file your taxes. Taxes have never been easier with FlyFin.

FlyFin CPA Team

FlyFin CPA Team

With a combined 150 years of experience, FlyFin's CPA tax team includes tax CPAs, IRS Enrolled Agents and other tax professionals, offering users the most comprehensive tax advice and preparation.

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