What You Need To Know About Taxes and Philly Homeownership

The real estate market in Philly is booming. It particularly attracts professionals with busy work schedules and active social lives. From daytime local events to bright-light nightlife, there is a lot to enjoy in Philly for all ages. A booming market can drive up prices for buyers, but building equity and taking advantage of tax write-offs can make homeownership more affordable than renting. Here are some of the most important tax related things to consider as a homeowner:

Mortgage Interest Deduction

When you purchase a home, the best financing situation involves the lowest interest rates. However, even if you don’t get the interest rate you had in mind, you can deduct the interest paid on your mortgage. If filing single, you can deduct up to $350,000 per year. Couples who file jointly can deduct as much as $750,000 per year. 

Property fTax Deduction

Property taxes are a specific percentage of the appraised value of your property.  Your property taxes are usually rolled into your loan payments, held in escrow and paid directly by the mortgage lender. Currently, the federal government allows homeowners to deduct up to a maximum of $10,000 of the property taxes paid on a yearly basis. 

Private Mortgage Insurance Deduction

If you make less than $100,000 as a married couple or $50,000 as a single person, you may have the chance to deduct private mortgage insurance, better known as PMI. This is also rolled into your loan and may remain or be removed in the future based on your loan tip and equity percentage.

Home Office Deduction

In 2020, professionals all across the country converted to remote work. Most of these professionals still work from home and might continue to do so for the foreseeable future. Working from home allows you to take advantage of a tax credit, but proceed with caution. Some accounting professionals believe that taking an office deduction increases the likelihood of having an IRS audit.

Home Upgrade Deductions

At the federal level, the government provides a solar tax credit for homeowners who install solar power systems that are in service by the end of the year. The tax credit drops each year and will phase out completely by 2022. At the local level, there might also be programs where you can receive tax credits or even cash rebates. You might also be able to obtain rebates and other deductions on your  local state and city taxes for making some improvements on your home.

Equity, Capital Gains and tax exemption – Home Sellers

Another important thing to consider is the long term financial future.  When it’s time to sell your house the equity that you’ve built can now be used to buy a future home or fund other investments.  While the equity you’ve built up is tax free, you might need to pay capital gains on the profits that you’ve made on your home.  If you have lived in your home as a primary residence for two of the last five years then you’d qualify to avoid capital gains taxes when selling your home.  There is a small catch for single tax filers your maximum taxable deduction is $250,000 and for joint/married filers the maximum is $500,000. While each scenario is different, it’s nice to know that a large portion of your profits could be tax free on your home.  

Properly planning your financial future is the key to success when it comes to real estate and home ownership.  If you have questions and would like to speak to a tax professional please reach out and we’d be happy to make an introduction to one! Owning a home in Philly is sure to bring more personal happiness to your life. The tax write-offs also help sweeten the deal. Browse our available listings and contact the Ian Perler Team for showings.

For detailed information from the IRS about deductions available for homeowners click here