It’s no secret that some of the major perks of homeownership are the tax write-offs and advantages that follow the purchase. In fact, according to a 2015 survey by, 83% of homebuyers see homeownership as a good investment, and 63% think it’s better than investing in the stock market. Reaping the rewards of mortgage interest and property tax deductions is just one way to think of your home as an investment. But there are even more real estate–related tax advantages and disadvantages that can slip under a new homeowner’s radar.
This is why it’s essential to reach out to your tax analyst before every property transaction, no matter how nonsensical a question you may have. We’ve developed a comprehensive list of moves one can make to ensure to maximize on returns;
1. Mortgage Refinancing
When you refinance into a lower interest rate mortgage, the motivation tends to be the lower monthly payment or the ability to pay off your home loan faster with the same payment every month. But don’t forget to calculate the potential tax deduction based on your mortgage interest, which is the largest tax perk of homeownership. Most homeowners are eligible to deduct 100% of the interest they pay on a mortgage, on their primary residence. So if you reduce the interest you pay, you also reduce your mortgage interest deduction.
Here’s some perspective: Fewer than 30% of homeowners take their mortgage interest deduction every year. This may be because at lower income and home price levels, the standard deduction is higher than the itemized deductions for which many homeowners would be eligible. But if you do itemize every year and/or you have a relatively high (or growing) adjusted gross income, you might be surprised at your tax bill the year after you refinance to a lower interest rate.
2. Becoming a landowner
Intelligent property investors know the complicated tax stirrups that come with holding onto, renting, and selling commercial properties. But what happens if you become a landowner? There are tax implications for being a landlord even when you rent out a room for a few nights here or there, or decide to rent out part or all of your own home for a long period. Landlords will pay a withholding tax on rental income of 12 per cent of gross rent, to be collected only by appointed KRA agents.
3. Remodeling your property
The conventional wisdom is that when you remodel your home, whatever you do, for the love of all that is sacred, save your receipts. And this is not a “save them until tax time” recommendation; it’s a “save them until you sell the place” mandate! The money you invest into improving your home over time gets added to your purchase price, or cost basis, when you sell, bringing down the amount KRA considers to be profit or gain and reducing your chances of incurring. Here’s where many homeowners go wrong: Remodeling projects can prompt tax costs. This is particularly true for home upgrades that increase your home’s energy efficiency, from low-flow toilets and showerheads to dual-paned windows and insulation, even solar systems and tankless water heaters. If you use a home equity credit line to finance your improvements, chances are, you can deduct the interest from that loan on top of your home mortgage interest deduction. Again, don’t forget to mention this to your tax professional.
Renting usually isn’t thought about as an intentional decision; it’s something many people do until they can afford to buy a home or know where their career will take them, geographically speaking. But there are people who have sufficient income, savings, and stability to own a home, but haven’t purchased one yet, for various reasons.
Someone who truly doesn’t want to own a home shouldn’t buy one simply for tax reasons, but if you’ve been ambivalent about it or have been thinking about it and procrastinating, you should at least be aware of the tax implications of your fence-sitting. As you move up the income ranks, consult with your tax professional about whether homeownership might get you some tax relief.