Owning a home comes with financial advantages, and tax season is the perfect time to maximize the benefits available to homeowners. Several deductions and credits can lead to significant savings — but understanding what’s available and how to claim these benefits correctly is key.

The first place to start? According to Chad Singletary, CPA, CGMA and Rebecca Graham, CPA, of Carr, Riggs & Ingram, an accounting and advisory firm in Montgomery, there are three important tax benefits that homeowners should know: 

• The mortgage interest deduction
• The deductibility of property taxes
• The ability to exclude all or part of the gain on the sale of a primary residence

Here’s what you need to know about each, as well as how to optimize your tax filing this year as a homeowner.

For homeowners who itemize their deductions rather than take the standard deduction, the mortgage interest deduction can be a valuable tax benefit. This deduction allows homeowners to write off the interest paid on their mortgage for a primary residence, with a limit of up to $750,000 in mortgage debt.

Because mortgage interest payments are typically higher in the early years of a loan, this deduction can provide meaningful savings for newer homeowners. 

Homeowners who itemize their deductions may also be eligible to deduct property taxes paid on their primary residence. However, state and local tax deductions — including property taxes — are limited to a total of $10,000 per year, notes Singletary and Graham.

Homeowners who sell their primary residence after living in it for at least two years may be eligible to exclude a portion of the profit from taxation. The excluded gain is limited to $250,000 for single filers and $500,000 for married couples filing jointly.

Note: This exclusion applies only to the sale of a primary residence — not investment properties or vacation homes.

If you purchased a home in 2024, there are additional tax benefits you can utilize:

• IRA Withdrawal: Every first-time home buyer — defined as someone who has not owned a personal residence in two years — can withdraw up to $10,000 from a traditional or Roth IRA without being subjected to the 10% early withdrawal penalty.
• Alabama’s First-Time/Second Chance Home Buyer Savings Program: Alabama residents who qualify as first-time or second-chance homebuyers can take advantage of a special savings account program designed to assist with future down payments and closing costs.
  • Single filers can contribute up to $5,000 per year.
  • Married couples can contribute up to $10,000 per year.
  • Contributions may be deductible, and earnings grow tax-free if used for a qualified home purchase.

To qualify, individuals must be Alabama residents who have not owned a home in the 10 years prior to their purchase. If funds from the savings account are not used for a home purchase, they may become taxable income.

Being a homeowner continues to have its perks. Additional benefits include:

• Home Office Deduction: Homeowners may be able to deduct certain expenses related to home ownership when they use a portion of their home exclusively for conducting business, Singletary and Graham said. A tax professional can help you identify the deduction method appropriate for your needs.
• Energy Efficient Home Improvement Credit: The Energy Efficient Home Improvement Credit is a tax credit of up to $3,200 for the following home improvements:
  • Qualified energy efficiency improvements (insulation and exterior windows and doors)
  • Qualified residential energy property expenditures (water heaters, furnaces, HVAC units, etc.)
  • Home energy audits

The credit is equal to up to 30% of the taxpayer’s expense, with additional limitations in place. 

There are many advantages to homeownership, including available tax incentives. To maximize your benefits, Singletary and Graham encourage you to work with a qualified tax preparer.

“Homeowners should discuss their homeownership status with a tax professional so that their preparer can work with them on how to take full advantage of the tax credits available to them,” they said.

A portion of your annual dues to Alabama REALTORS®, including national, state, and local dues, may be tax deductible. Specifically, 65% of your national dues and 75.2% of your state dues qualify for tax deductions. For details on the tax-deductible portion of your local dues, please contact your local association of REALTORS®. 

This article is intended as information only and does not constitute tax advice. Consult a licensed tax professional for advice.