WSJ Your Money Briefing - How Owning a Home Can Help You Save on Taxes

Episode Date: February 18, 2025

Buying a home is a major investment for many Americans but there are ways to make it less taxing. Wall Street Journal reporter Ashlea Ebeling joins host Ariana Aspuru to discuss what homeowners should know to maximize their tax return.   Sign up for the WSJ's free Markets A.M. newsletter.  Learn more about your ad choices. Visit megaphone.fm/adchoices

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I'm Arianna Aspuru for The Wall Street Journal. When filing your taxes, it pays to be detailed. If you're a homeowner, finding tax breaks, deductions, and credits that apply to you can help you get the most money back on your 2024 return. Well tax software is going to walk you through it, but you need to keep the records. So if you had the energy efficient property that it's called, if you have the insulation, you need the receipt from your contractor. And if you have a certain heat pump that was put in, you need to see from the HVAC company that it's a model that

qualifies for the tax credit. We'll talk with Wall Street Journal reporter, Ashley at Ebling, about how your home can shelter you from taxes. That's after the break. bills, defeating your monthly payments. Sounds like you're at the top of your financial game. My score. Rise to it with the BMO Eclipse Rise Visa Card, the credit card that rewards your good financial habits. Earn points for paying your credit card bill

in full and on time every month. Level up from bill payer to reward slayer. Terms and conditions apply. To reward Slayer, terms and conditions apply. Buying a home is one of the biggest investments for many Americans. But there are ways to make it less taxing. Wall Street Journal reporter, Ashlea Ebling joins me. Ashlea, how does the process of filing your taxes change when you own a home?

So basically a home is a tax shelter so to speak taxpayers who itemize deductions instead of taking the standard deduction can deduct mortgage interest paid on loans on their main home and even a second home and then they can also deduct Property taxes real estate taxes and this is contingent on if someone decides to itemize their deductions rather than take the standard deduction. Why would someone choose to do that? So the standard deduction just gives you the flat amount. And if you can itemize, then you're going to get more deductions. So you're saving more on taxes.

The tricky thing is there's a salt cap and that's a cap that they put in the 2017 tax law that caps your state and local tax deductions including real estate taxes and that can actually hurt homeowners. How does it hurt homeowners? Well it's an overall cap that limits these deductions. It's only $10,000 per tax return. And that's whether you're filing as a single or married couple. For people filing their taxes relatively soon, it's due in April, itemizing your deductions when it comes to your home can save you money.

What can't you deduct? For a typical homeowner, you can't deduct things like insurance or the cost of utilities or if you put on a new roof or what you pay for internet or homeowners association fees, for example. Can you deduct expenses for something like a home office? So that's a little tricky in the pandemic. All the people working from home thought, oh, maybe I can take a deduction for my home office.

But it only works if you're actually self-employed and you're filing as a small business. So not if you have a W-2 job, but if you have a gig job and you have self-employment income, then you can deduct your home office expenses. There's a simple way to do that where you just divide up the square footage. You get like $5 per square foot

of the portion of the house you use for your business. That's like a simple home office deduction. And these self-employed people can also, going back to that list of what you can't deduct, they can prorate things like utilities and other expenses. Another consideration for homeowners to make when filing your taxes is what credits you qualify for. What are some that homeowners can look at? In 2022, the Inflation Reduction Act, it greatly expanded these tax credits for energy efficiency home improvements. So you could add insulation,

a new energy efficient window or door, and you can get up to $3,200 a year for those types of improvements. I'm filing that this year personally for putting a heat pump in my new house. Really? Okay. And you're expecting to get some money back? Yes. So I'll get the $2,000 back on my taxes, but needless to say, the heat pump cost a lot. It's still a break. So, yeah. Yeah. And what about things like solar panels? Are there still tax credits for that? So the solar panel credits were also extended as part of that 2022 law, and that's a huge credit. It covers 30% of the cost of the solar panels and installation. It also works for

people who do small wind or home geothermal systems that work better in certain parts of the country. All of these energy credits are at risk under the new administration. We'll see what happens as the Congress debates the tax bill. What about if you sold your home in 2024 for more money than you originally bought it for? How do you make the gains on that less taxing? So that's really an issue for people who've had their home for a really long time that's gone up in value a huge amount. There's a home sale exclusion that allows single filers to exclude up to $250,000 of capital gains, and married couples filing jointly can exclude up to $500,000 of capital gains. But there are families who've had their houses either in hot markets or for decades, who face these limits. The last thing you mentioned in your tax sheet is one of the ultimate tax breaks,

leaving your home to your heirs. How does this impact your taxes? So if someone dies and they leave their house to their heirs, the capital gains can effectively be reset to zero. It's called step up in basis. And then the heir would only owe capital gains taxes on the home's growth from that date forward basically Does someone need to hire a tax professional to get the most out of these home related tax rules these deductions these credits? Well tax software is going to walk you through it, but you need to keep the records so if you had the energy efficient property that it's called if you have the

insulation you need the receipt from your contractor and if you had the energy efficient property that it's called, if you have the insulation, you need the receipt from your contractor. And if you have a certain heat pump that was put in, you need to see from the HVAC company that it's a model that qualifies for the tax credit. What key documents does someone need to have? So for the mortgage interest deduction, your mortgage company will send you tax forms in January. For the green energy credits, you need receipts from your contractors backup. It's kind of like you need backup for charity receipts. In this case, it would be model numbers of the equipment you put in to make sure it qualifies.

And then for the home sale exclusion, on top of that $250,000-$500,000 exclusion, any capital improvements you make can also add to the cost basis. So that would essentially give you a bigger exclusion. So keep records if you put on a new roof or if you add a pool or a pad, a deck, anything like that would count that would add value to your house that you wouldn't then have to pay capital gains tax on it. That's WSJ Reporter Ashley at Ebling and that's it for your money briefing. I'm Arianna Aspuru for The Wall Street Journal This episode was produced by me with supervising producer Melanie Roy. Thanks for watching!