Top 5 Federal Tax Issues Homeowners Should Consider

As tax season approaches, homeowners across Washington State are preparing to file their 2024 federal income taxes. Owning a home comes with several potential tax benefits, but it also requires careful consideration to maximize savings and stay compliant with IRS regulations. Here are the top five federal tax issues Washington homeowners should keep in mind as they file their 2024 taxes.

1. Mortgage Interest Deduction

For many homeowners, mortgage interest is one of the most significant deductions available. If you have a mortgage on your primary residence or a qualified second home, you may be able to deduct interest paid on loans up to $750,000 (or $1 million if the mortgage was originated before December 15, 2017). Make sure to review Form 1098 from your lender and consult a tax professional if you refinanced, as this can impact your deduction eligibility.

2. Property Tax Deduction

Property taxes in Washington State can be substantial, especially in high-demand areas like Seattle, Bellevue, and Redmond. Homeowners can deduct up to $10,000 ($5,000 if married filing separately) for state and local taxes (SALT), including property taxes. Remember, the SALT deduction limit applies to the total of all state and local income, sales, and property taxes combined.

3. Home Office Deduction (for Eligible Self-Employed Homeowners)

With the rise of remote work, many Washingtonians have set up home offices. While W-2 employees can no longer deduct home office expenses, self-employed individuals, freelancers, and independent contractors can still benefit from this deduction. The space must be used regularly and exclusively for business. The simplified method allows a deduction of $5 per square foot, up to 300 square feet, or you can use the actual expense method for more precise calculations.

4. Energy-Efficient Home Improvements (Residential Clean Energy Credit)

Homeowners who made energy-efficient upgrades in 2024 may qualify for valuable tax credits. The Inflation Reduction Act expanded these incentives, allowing credits for solar panels, energy-efficient windows and doors, heat pumps, and more. The Residential Clean Energy Credit offers a 30% credit for eligible improvements, with no annual limit on solar installations. Be sure to keep all receipts and manufacturer certifications.

5. Capital Gains Tax on Home Sales

If you sold your home in 2024, understanding capital gains tax rules is essential. Homeowners can exclude up to $250,000 of profit from capital gains taxes if single, or $500,000 if married filing jointly, provided they lived in the home as their primary residence for at least two of the past five years. Capital gains exceeding these thresholds are taxed at rates ranging from 0% to 20%, depending on your overall income.

Final Tips for Homeowners

• Gather documentation early, including Form 1098, property tax records, and receipts for any eligible home improvements.

• If you sold or purchased a home in 2024, request a copy of your settlement statement (HUD-1 or Closing Disclosure) for potential deductions.

• Consider consulting with a qualified tax advisor, especially if you made significant renovations, claimed a home office, or sold your property.

By staying informed about these key tax issues, Washington homeowners can maximize their savings and file their 2024 federal taxes with confidence. If you have questions about your home's tax implications or are considering a move in 2025, our experienced real estate team is here to help you navigate the market and make the most of your investment.

Give us a call at 206.489.4920