Tax Breaks for Homeownership: A Guide for Remote Workers

By Natalia Wolting • Aug 26, 2024 UTC

As a remote worker, the flexibility to work from anywhere opens doors to new locations and lifestyles. Homeownership can be a particularly attractive option, offering stability, potential investment growth, and a dedicated workspace. But navigating the financial aspects of buying a home can be daunting. The good news is that the IRS offers several tax breaks specifically for homeowners, including those who claim a home office deduction – a significant perk for remote workers.

This guide will break down the difference between tax credits and deductions and explore some of the tax benefits you may qualify for as a remote worker homeowner. We'll also introduce you to the MakeMyMove program, a valuable resource for remote workers considering relocation.

Tax Credits vs. Deductions

Understanding the difference between tax credits and deductions is crucial for maximizing your tax savings.

Tax credits - Directly reduce the amount of tax you owe. Think of it as a dollar-for-dollar reduction on your tax bill. For example, if you qualify for a $1,000 tax credit and owe $2,000 in taxes, you'll only owe $1,000.
Tax deductions - Lower your taxable income, which can then reduce your tax bill. The amount you save depends on your tax bracket. For instance, if you're in the 22% tax bracket and deduct $1,000, you'll save $220 in taxes.

Tax Credits for Homebuyers

There are a few tax credits available to homebuyers, with some specifically targeting first-time buyers.

Mortgage Credit Certificate (MCC) - This federal program is designed to help low- and moderate-income first-time homebuyers afford a home. It allows you to claim a tax credit for a portion of your mortgage interest paid each year, up to a maximum of $2,000. This program can be a great way to ease the financial burden of homeownership, especially for remote workers who may be adjusting to a new cost of living.
State and local buyer programs - Some states offer tax credits to first-time homebuyers. These programs vary by location, so check with your local housing department for details.

Tax Deductions for Homeowners

Homeownership comes with several tax-deductible expenses that can significantly reduce your tax burden. However, to claim these deductions, you'll need to itemize deductions on your tax return. This means listing all your itemized deductions instead of taking the standard deduction offered by the IRS. It's generally recommended to itemize only if your total itemized deductions exceed the standard deduction amount.

Here are some common tax deductions for homeowners:

Mortgage interest -If you itemize deductions, you can deduct the interest paid on your mortgage up to a certain limit. This is a significant deduction for most homeowners, and remote workers who can live anywhere may be able to utilize geoarbitrage to achieve an even lower mortgage payment to maximize this benefit.
Property taxes - Up to $10,000 of property taxes paid each year can be deducted if you itemize. Property taxes can vary greatly depending on location, so factor this into your homebuying decision.
Mortgage points - Fees paid to obtain a lower mortgage interest rate can be deducted over the life of the loan. This can be a smart strategy for remote workers who plan to stay in their home for a long time.
Home office deduction - As a remote worker, this deduction can be particularly valuable if you use a dedicated space in your home for work regularly and exclusively. You may also be able to deduct a portion of your home office expenses, including utilities, repairs and depreciation. Consult a tax professional to ensure you meet the IRS qualifications for claiming this deduction.

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Additional Tax Benefits and Incentives

Owning a home offers advantages beyond the initial purchase. Here are some additional tax benefits to consider:

Capital gains exclusion - When you sell your home, you may be able to exclude a portion of the profit from capital gains taxes if you lived in the home for at least two of the past five years. This can be a significant tax advantage, especially if the housing market appreciates in your area.
Home equity loan interest - Interest paid on a home equity loan used for improvements to your home may be deductible. This can be helpful for remote workers who want to create a dedicated and optimized home office space.
IRA penalty waiver - First-time homebuyers may be able to withdraw up to $10,000 from a traditional or Roth IRA penalty-free to use towards a down payment. However, keep in mind that the actual withdrawal may still be considered taxable income. This can be a great way to access funds for a down payment without incurring tax penalties.

MakeMyMove - Specifically designed to streamline the relocation process for remote workers. MakeMyMove offers a wealth of information and resources to help you navigate the transition to a new location, including details on any local homebuyer programs or financial incentives. Whether you're considering a move to a bustling city or a peaceful suburban community, MakeMyMove can connect you with the information you need to make informed decisions.

Homeownership can be a rewarding investment, especially for remote workers who enjoy the flexibility and stability it provides. By understanding the various tax breaks available, homeowners can significantly reduce their tax burden. From mortgage interest deductions to the potential home office deduction, there are numerous opportunities to save.

Remember, tax laws can be complex, and what works for one person may not work for another. Consulting with a tax professional can help you maximize your tax benefits and ensure you're taking full advantage of the credits and deductions available to you.

About MakeMyMove

Remote work has freed millions of Americans to live where they want, and many are making the move to places that better match their lifestyle. In turn, cities and towns across the country are offering incentives like cash, perks and programming to remote workers who move and work from their communities. At MakeMyMove, you can explore all the places, get personalized help to find the one that’s right for you, connect with locals, and access support to make your move a piece of cake.