Tax Planning

Primary Residence Tax Benefits

Learn the key tax benefits of homeownership, from mortgage interest and property tax deductions to the Section 121 capital gains exclusion.

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Mortgage Interest Deduction

Homeowners who itemize can deduct interest on up to $750,000 of mortgage debt (TCJA limit)
Mortgages originated before December 15, 2017 retain the prior $1 million limit
The deduction applies to acquisition debt used to buy, build, or substantially improve the home
Interest on second homes also qualifies, subject to the same combined debt limit

Energy Efficiency Tax Credits

The Residential Clean Energy Credit covers 30% of solar, wind, and geothermal system costs
The Energy Efficient Home Improvement Credit covers qualifying upgrades up to $3,200 per year
Eligible improvements include heat pumps, insulation, windows, doors, and efficient HVAC systems
Credits directly reduce tax liability dollar-for-dollar, making them more valuable than deductions

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Mortgage Interest Deduction

Homeowners who itemize can deduct interest on up to $750,000 of mortgage debt (TCJA limit)
Mortgages originated before December 15, 2017 retain the prior $1 million limit
The deduction applies to acquisition debt used to buy, build, or substantially improve the home
Interest on second homes also qualifies, subject to the same combined debt limit

Property Tax, SALT, and Home Equity Interest

State and local property taxes are deductible when itemizing, but SALT is capped at $40,000
The $40,000 cap includes state income or sales taxes combined with property taxes
Home equity loan interest is deductible only if proceeds improve the secured residence
Combined acquisition and home equity debt must stay within the $750,000 limit

Capital Gains Exclusion, Section 121

Single filers may exclude up to $250,000 of gain; married couples up to $500,000
The seller must have owned and used the home as a primary residence for 2 of the last 5 years
The exclusion can generally be used once every two years with no limit on lifetime use
A surviving spouse may claim the full $500,000 exclusion if the sale occurs within 2 years

Ownership, Use Tests, and Partial Exclusions

The 2-year ownership and use periods do not need to be consecutive within the 5-year window
Military, Foreign Service, and intelligence personnel may suspend the 5-year test period
Sellers who fail the 2-year test may qualify for a partial exclusion due to unforeseen events
Homes converted from rental use may have depreciation gain that is not excludable

Home Office Deduction for Self-Employed

Self-employed homeowners may deduct a portion of housing costs for a qualifying home office
The space must be used regularly and exclusively as the principal place of business
The simplified method allows a deduction of $5 per square foot, up to 300 square feet
W-2 employees generally cannot claim a home office deduction under current federal tax law

Energy Efficiency Tax Credits

The Residential Clean Energy Credit covers 30% of solar, wind, and geothermal system costs
The Energy Efficient Home Improvement Credit covers qualifying upgrades up to $3,200 per year
Eligible improvements include heat pumps, insulation, windows, doors, and efficient HVAC systems
Credits directly reduce tax liability dollar-for-dollar, making them more valuable than deductions

Mortgage Points and Loan-Related Deductions

Points paid on a purchase mortgage are generally deductible in full in the year of closing
Points paid on a refinance must be amortized over the life of the new loan
Private mortgage insurance premiums have historically been deductible but availability varies
Loan origination fees that represent prepaid interest are treated the same as points

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The information above is for educational purposes only and does not constitute investment advice, a recommendation, or a solicitation to buy or sell any security. Any historical figures are for illustration only, and past performance does not guarantee future results. Tax laws, regulations, and contribution limits change frequently, the details here may become outdated. Individual circumstances vary. Consult a qualified financial advisor, CPA, or attorney for guidance specific to your situation. Rubric Advisors is registered with the California DFPI; registration does not imply a certain level of skill or training.

Primary Residence Tax Benefits

Mortgage Interest Deduction

Property Tax, SALT, and Home Equity Interest

Capital Gains Exclusion, Section 121

Ownership, Use Tests, and Partial Exclusions

Home Office Deduction for Self-Employed

Energy Efficiency Tax Credits

Mortgage Points and Loan-Related Deductions

Mortgage Interest Deduction

Property Tax, SALT, and Home Equity Interest

Capital Gains Exclusion, Section 121

Ownership, Use Tests, and Partial Exclusions

Home Office Deduction for Self-Employed

Energy Efficiency Tax Credits

Mortgage Points and Loan-Related Deductions

Related Topics

Itemized vs Standard Deduction

Selling Your Primary Home (Section 121 Exclusion)

Alternative Minimum Tax (AMT) Planning

Primary Residence Tax Benefits

Mortgage Interest Deduction

Property Tax, SALT, and Home Equity Interest

Capital Gains Exclusion, Section 121

Ownership, Use Tests, and Partial Exclusions

Home Office Deduction for Self-Employed

Energy Efficiency Tax Credits

Mortgage Points and Loan-Related Deductions

Mortgage Interest Deduction

Property Tax, SALT, and Home Equity Interest

Capital Gains Exclusion, Section 121

Ownership, Use Tests, and Partial Exclusions

Home Office Deduction for Self-Employed

Energy Efficiency Tax Credits

Mortgage Points and Loan-Related Deductions

Related Topics

Itemized vs Standard Deduction

Selling Your Primary Home (Section 121 Exclusion)

Alternative Minimum Tax (AMT) Planning