WSJ Your Money Briefing

Episode: How Owning a Home Can Help You Save on Taxes

Date: February 18, 2025

Host: Mariana Aspuru
Guest: Ashleya Ebling (WSJ Reporter)

Episode Overview

This episode explores how homeownership can provide significant tax advantages on your 2024 return. Wall Street Journal reporter Ashleya Ebling details deductions, credits, and other tax benefits available to homeowners, along with practical advice for maximizing savings and staying organized for tax season.

Key Discussion Points and Insights

1. Homeownership as a “Tax Shelter”

• Homeowners who itemize rather than take the standard deduction can deduct mortgage interest (on both primary and eligible second homes) and property/real estate taxes.
• Quote:

  “Basically a home is a tax shelter, so to speak.”
  — Ashleya Ebling [02:14]

• Property tax deduction is limited by the “SALT” (State and Local Tax) cap introduced in 2017.

2. Itemizing vs. Standard Deduction

• Itemizing makes sense if your eligible deductions exceed the standard deduction amount.
• The SALT cap restricts the total state and local taxes (including real estate taxes) that can be deducted to $10,000 per tax return, regardless of filing status.
• Quote:

  “It’s only $10,000 per tax return, and that’s whether you’re filing as a single or married couple.”
  — Ashleya Ebling [03:09]

3. Non-Deductible Expenses

• Certain costs are not deductible for typical homeowners:
  • Home insurance
  • Utilities
  • Costs of a new roof
  • Internet
  • Homeowners association (HOA) fees
• Quote:

  “For a typical homeowner, you can’t deduct things like insurance or the cost of utilities, or if you put on a new roof or what you pay for Internet or homeowners association fees, for example.”
  — Ashleya Ebling [03:28]

4. Home Office Deduction

• Only available to self-employed individuals or those with business income (not W-2 employees).
• The simplified home office deduction allows $5 per square foot used exclusively/regularly for work.
• Self-employed can also deduct a proportionate amount of utilities and other expenses for the workspace.
• Quote:

  “It only works if you’re actually self-employed and you’re filing as a small business.”
  — Ashleya Ebling [03:44]

5. Credits for Energy-Efficient Improvements

• Inflation Reduction Act of 2022 expanded credits for:
  • Insulation
  • Energy-efficient windows, doors
  • Heat pumps
• Maximum: $3,200/year in credits for qualifying improvements.
• Example: Ashleya is claiming a $2,000 credit for a new heat pump in her own home.
• Quote:

  “I’m filing that this year personally for putting a heat pump in my new house.”
  — Ashleya Ebling [04:32]

6. Solar and Other Renewable Energy Credits

• Solar panel installation: up to 30% of the installed cost is credited.
• Applies also to small wind and geothermal systems.
• These credits’ future could change depending on the political climate.
• Quote:

  “That’s a huge credit. It covers 30% of the cost of the solar panels and installation.”
  — Ashleya Ebling [05:13]

7. Home Sale Capital Gains Exclusion

• When selling your primary residence:
  • Up to $250,000 of gains can be excluded for single filers
  • Up to $500,000 for married filing jointly
• Applies primarily to properties held for many years or in hot markets.
• Quote:

  “There’s a home sale exclusion that allows single filers to exclude up to $250,000 of capital gains. And married couples... up to $500,000.”
  — Ashleya Ebling [05:49]

8. “Step Up in Basis” for Heirs

• When a home is inherited, its tax basis is reset to current market value at the decedent’s death.
• This limits capital gains taxes for heirs going forward.
• Quote:

  “If someone dies and they leave their house to their heirs, the capital gains can effectively be reset to zero.”
  — Ashleya Ebling [06:23]

9. Using Tax Professionals or Software

• Tax software is generally sufficient, but homeowners must keep good records.
• For energy credits, save receipts and equipment model numbers to prove eligibility.
• Quote:

  “Tax software is going to walk you through it, but you need to keep the records.”
  — Ashleya Ebling [06:45]

10. Essential Documentation

• For mortgage interest: Form sent from lender in January
• For energy credits: Receipts from contractors, proof of qualifying models
• For home sale exclusion: Records of any capital improvements (e.g., roof, pool, deck), as these can increase your tax basis
• Quote:

  “Keep records. If you put on a new roof or if you add a pool or a patio or a deck, anything like that would count.”
  — Ashleya Ebling [07:10]

Notable Quotes & Memorable Moments

• “A home is a tax shelter, so to speak.” [02:14]
• “It’s only $10,000 per tax return, and that’s whether you’re filing as a single or married couple.” [03:09]
• “It only works if you’re actually self-employed and you’re filing as a small business.” [03:44]
• “I’m filing that this year personally for putting a heat pump in my new house.” [04:32]
• “That’s a huge credit. It covers 30% of the cost of the solar panels and installation.” [05:13]
• “If someone dies and they leave their house to their heirs, the capital gains can effectively be reset to zero.” [06:23]
• “Keep records. If you put on a new roof or if you add a pool or a patio or a deck, anything like that would count.” [07:10]

Timestamps for Key Segments

• [02:14] Homeownership and itemized deductions
• [03:09] The SALT cap and its effect on tax deductions
• [03:44] Home office deduction details
• [04:32] Energy-efficient home improvement credits
• [05:13] Solar and renewable energy credits
• [05:49] Home sale capital gains exclusions
• [06:23] Step up in basis for heirs
• [06:45] Best practices for documentation

Summary Takeaways

Being a homeowner comes with several tax-saving opportunities, particularly through itemization, energy efficiency credits, and capital gains exclusions on home sales. The most vital step is meticulous recordkeeping, especially regarding qualifying expenses and home improvements. While tax software usually suffices for most, the complexity of certain credits means it’s worth keeping thorough documentation in case of questions or audits.

Homeowners are encouraged to familiarize themselves with what is and isn’t deductible, take advantage of credits while they last, and document everything to maximize tax benefits come April.