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  5. Video: Renting vs Buying a Home: Tax Breaks You Should Know

Video: Renting vs Buying a Home: Tax Breaks You Should Know

Updated for Tax Year 2022 • December 1, 2022 08:39 AM


OVERVIEW

Homeownership is touted as one of the greatest tax benefits for many Americans. Buying a home offers a variety of tax deductions that can mean big savings for you in the long term. Learn how renting vs buying a home will affect your taxes.


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For information on the third coronavirus relief package, please visit our “American Rescue Plan: What Does it Mean for You and a Third Stimulus Check” blog post.


 

Video transcript:

Hello, I’m Nick from TurboTax with some tips on tax breaks when it comes to renting versus buying a home.

Are you looking for big tax breaks? Then you may want to start looking into buying a home instead of renting.

Most people can deduct all of the mortgage interest that they’ve paid. That’s a biggie! And valuable in the early years of a mortgage, since most of the money paid is interest.

Property taxes may also be fully deductible.

Major home improvements are not immediately deductible, but you can add those expenses to the cost basis of the home so that when you sell it, any taxable gain is reduced by the sums you invested in improvements.

You could be eligible for the Residential Energy Efficient Property Credit, too, in an amount up to thirty percent of the cost of alternative energy equipment installed on or in your home, such as solar hot water heaters or wind turbines.

You may also be able to withdraw up to ten thousand dollars from your IRA early without the hefty penalty if the withdrawal goes toward buying a home.

Renting a home, on the other hand, offers few tax breaks. If you use your rented home for business, then you may deduct a portion of your rent payment. Also, a few states offer a small deduction for renters on their state taxes.

So when it comes to the tax breaks of renting versus buying a home, buying is the winner.

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