When you are renting an apartment, the amount of taxes you owe each year is often based on your taxable income. When you buy a house, however, new rules may change. You can reduce how much tax you owe by claiming certain deductions when filing your taxes, including mortgage interest payments and property taxes.
Always check with your CPA or set up an appointment with Sanjiv Gupta CPA to ensure you understand the rules properly.
As of today, You can deduct the interest on up to $750,000 of home acquisition debt (married filing jointly). Single or married filing separately can deduct up to $375,000.
You can claim an exemption of up to $250,000 for capital gains on the sale of your first house. This exemption phases out if you have a modified adjusted gross income between $100,000 and $150,000, or between $200,000 and $250,000 if you are filing as married but separate. The exemption is 50% of the amount your income exceeds the threshold. For example, if you are married but filing separately and have a modified adjusted gross income between $125,000 and $135,000, you can claim up to $187,500 on the sale of your first house.
If you are single or file as head of household, the exemption on the sale of your first house phases out between $250,000 and $500,000. Married couples filing jointly will not see these phase-out limits until they have a modified adjusted gross income between $300,000 and $500,000.
Capital gains on the sale of your first house are exempt if you bought it after Nov. 6, 2017, and owned and used it as your house for two of the five years before you sold it. If you sell after Dec. 31, 2025, these rules change to exempt any capital gain resulting from a house sale as long as you owned and lived in the house for at least five out of the eight years before selling.
If you are renting out your first house, you can deduct some of the expenses related to it. You cannot claim deductions for rent or utilities if the primary reason you bought your house is to make money, but if you use it as a home and receive rents from tenants, these deductions may be available:
Property taxes. You can deduct what you pay in property taxes.
Home equity loan interest. You can deduct the interest on a home equity loan if you use it to buy, build or improve your first house and meet all the requirements for deducting mortgage interest .
Mortgage insurance premiums. You can only deduct mortgage insurance premiums if you took out your mortgage after Nov. 6, 2017.
Points. You can deduct the points you pay to get your loan, but only if these points are considered interest and not part payment of principal .
Rental expenses. If you rent out your house for 15 days or less each year, you can deduct just the fair market value of the rental days in excess of that limit . If you rent out your house for more than 15 days a year, you can deduct all of your rental expenses each year .
If you do not meet all these requirements, or have a second home, the points and other expenses related to that property are deducted over the life of the loan. If you have a mortgage on your first house as well as a mortgage on your second house, you can choose which property to deduct points and other expenses for.
If you buy a condo, co-op or time share as an investment and rent it out part of the year , you cannot claim deductions for these properties. You can only claim deductions for a full-time rental . You can deduct all of your expenses, including depreciation. If you are renting out your first house, you can use an accrual method of accounting to claim deductions each year, even though the rental income may not be in your possession. You can deduct whatever portion of these expenses that apply to the part of the year the house was rented.