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Homeowners can take advantage of many perks when it comes time to file taxes. (Getty Images)

Whether you’re gearing up to file your taxes this year, researching what’s ahead for next year or simply contemplating the benefits to buying a house in the future, there’s a lot to consider.

Under the Tax Cuts and Jobs Act, which takes effect for tax filings for the 2018 calendar year, standard deduction increases will likely mean far fewer Americans will need to itemize their returns to receive the maximum amount of money back. As many as 27 million fewer taxpayers may need to itemize their taxes, according to an estimate from the Tax Policy Center.

Of course, that still leaves 19 million taxpayers who will benefit from itemized deductions. If you currently own a home, are considering purchasing one or have made changes to your mortgage, it’s important to know how your tax return may be affected.

[Read: How Moving to a New Home Affects Your Affects Your Taxes.]

Here’s a breakdown of tax breaks available to homeowners who itemize.

Mortgage Interest

A major benefit of homeownership is that you can deduct your mortgage interest on your taxes.

There are monetary limits to the total amount of debt, of course: Interest paid throughout the year is deductible on your taxes for mortgages up to $1 million for a loan issued prior to Dec. 14, 2017, and up to $750,000 for any loans issued after that date. The limits count as your total housing-related debt, including the mortgage on your home, a mortgage for a second home or home equity loan or line of credit (which come with additional limitations outlined below).

By the end of January, you should receive a 1098 form from your mortgage servicer. With the total interest you paid throughout the year printed on the form, you can use the 1098 as your guide for the mortgage interest deduction process.

In the same way it contributes to your total mortgage debt, the interest on a refinanced mortgage can also be deductible, following the debt limitations depending on when it was issued.

However, if homeowners are looking to refinance an existing mortgage soon, they may want to consider the choice carefully. The Federal Reserve has steadily increased interest rates throughout 2018 and is expected to do so at least a couple more times in 2019, according to John Pataky, executive vice president and chief consumer and commercial banking executive at TIAA Bank based in Jacksonville, Florida.

As a result, the share of refinances that banks close on may shrink going forward. Pataky says he typically sees 75 percent of mortgage lending at TIAA Bank taken up by new purchases, and the remaining 25 percent is refinances. Rising interest rates, combined with the loss of the grandfathered deduction amount, make refinancing now or in the near future less attractive for many. Pataky predicts 2019 is "going to be about the purchase."

Home Equity Line of Credit Interest

In line with your mortgage interest, the interest on a home equity loan or home equity line of credit can also be deducted when you file your taxes.

Following the reform for 2018 taxes, if you borrow against the equity in your home, the interest deduction is subject to the same $750,000 limit for total mortgage debt and only applies when the money borrowed goes toward the home itself. You won't be able to deduct the interest for a HELOC that bought you a boat, for example, but the interest on a HELOC that went toward finishing your basement or renovating the bathrooms is deductible.

State and Local Property Taxes

Deducting state and local property taxes on your federal tax return has long been another primary financial benefit to owning a home. But the new rules may lessen the appeal of that perk for some homeowners, says John Karaffa, a certified public accountant based in Richmond, Virginia, founder and president of ProSport CPA and author of "Touchdown Finance: Personal Finance Tips From the Pros."

From 2018 onward, the total deduction for your combined state and local income, sales and property taxes is capped at $10,000. While the majority of homeowners won't be affected because their property taxes are below the limit, Karaffa notes a much larger impact will be felt in states with high property taxes, such as California, New York and New Jersey.

"My gut tells me there's going to be migration," Karaffa says. "It (already) got harder to sell a home in New Jersey all of a sudden."

[Read: 5 Reasons Owning a House Isn't as Good as Cash in the Bank.]

Rental Income

It’s becoming increasingly common for homeowners to harness the earning potential of their property by renting out space to tenants or tourists. Rentership in the U.S. is near a 50-year high, according to the U.S. Census Bureau, with 35.6 percent of the population renting rather than owning a home as of the third quarter of 2018. A large share of potential renters can make becoming a landlord attractive. Whether you have an English basement you rent to a tenant or a guest house to market on Airbnb, you’re required to report the additional income you receive on your taxes, explains Thomas Bayles, senior vice president of Mortgage Capital Partners in Los Angeles.

The benefit, however, comes from being able to deduct the cost of repairs and improvements made to that rental space.

“Let’s say you only made $5,000 on rental income but you spent $30,000 repairing (the rental space) that year,” Bayles says. “You can take that $30,000 deduction on your tax return, so that will reduce your taxable income dollar for dollar, which is huge. For someone making $100,000 on paper, it’ll look like you made $70,000, so your taxes are reduced.”

If you own commercial or residential property as an investment rather than living there yourself, repairs to these properties are also deductible, but tax laws are separate from those for homeowners.



Home Office Expenses

Working from home is another increasingly popular way homeowners are maximizing their space. If you work exclusively from home, you may be able to deduct costs for the space on your itemized tax return.

However, the requirements for the home office deduction change for 2018 filings. For 2018 taxes, deductions are limited to self-employed workers. Regardless of the year you’re filing, your home office can’t be in a guest bedroom or other space used for a dual purpose, and it must be used regularly.

But strict requirements shouldn’t deter you from filing for a home office deduction if you do, in fact, use your home office within the guidelines.

Capital Gains From a Home Sale

There are certainly tax benefits to owning a home, but selling your house, in most cases, gives the kind of tax break few people expect or realize. The capital gains exclusion rule allows home sellers to keep the profit from a home sale without paying taxes on it.

Bayles notes the requirements for the rule: “If you’ve lived in the property as your primary residence two years in the last five years … you can make $250,000 profit as a single person, tax-free, or $500,000 as a married couple.”

[Read: Will You Be Able to Get a Mortgage?]

The majority of home sales fall under these stipulations, which means most home sellers are able to profit from the sale of their home without having to report those earnings to the IRS.

Of course, most people who sell their house take the profits to purchase their next home. Bayles says roughly three-quarters of his clients buy their next house with profits from the last one. The rest often use the extra funds to pay off debt or add to their retirement savings.

“(The equity is) a pretty powerful tool when done right,” he says.


The Best Places in the U.S. With the Highest and Lowest Sales Tax

Where do sales tax rates make the biggest difference?

A woman is paying at a coffee shop.  The cashier is a young man.  They are smiling at each other.

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Whether you’re buying holiday gifts for family members, reviving your wardrobe or simply shopping at the grocery store, sales tax can make spending feel like it goes from reasonable to over budget with the ding of the cash register. Because sales tax varies by state, county and even municipality, where you shop can mean the difference between a couple cents and few dollars extra. Sales tax rates aren’t a part of the calculation for the U.S. News Best Places to Live rankings, but they can play a part in how to budget and plan for a move. We’ve compiled the 20 metro areas out of the 125 most populous in the U.S. that make up the Best Places to Live with the highest and lowest combined sales tax rates for regular, store-bought goods.

Markets with the highest sales tax

Markets with the highest sales tax

Woman signing payment terminal in grocery store

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These metro areas often not only have a sizable state sales tax, but in each case they also have county and city taxes that increase the total of a retail purchase. We determined the places with the highest sales tax based on local taxes levied by the biggest city by population in each market, as that’s where the most residents are likely to spend their money. In outer suburbs, the local sales tax may be slightly higher or lower as a result of different municipal policies. All tax rates come from tax information company Avalara and its subsidiary TaxRates.com. The following places with high sales tax are listed from lowest to highest rate.

Highest: San Jose, California

Highest: San Jose, California

San Jose, USA - March 3, 2015: Downtown San Jose California, featuring the hotel DeAnza, Office towers, traffic light and Almaden Bl road sign. Photographed on a sunny day with clear blue sky. No traffic on the street.

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Best Places 2018 Rank: 17
Metro Population: 1,943,107
Combined Local Sales Tax Rate: 9.25 percent

California collects just 6 percent sales tax for the state. But a 0.25 percent sales tax for both Santa Clara County and the city of San Jose plus a 2.75 percent special tax – which is often voted for by local residents to fund specific projects – add up to 9.25 percent.

Highest: Knoxville, Tennessee

Highest: Knoxville, Tennessee

Knoxville

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Best Places 2018 Rank: 64
Metro Population: 857,111
Combined Local Sales Tax Rate: 9.25 percent

Knoxville doesn’t charge residents additional sales tax in the city, but Knox County levies a 2.25 percent sales tax in addition to Tennessee’s statewide 7 percent sales tax rate.

Highest: Chattanooga, Tennessee

Highest: Chattanooga, Tennessee

Sunrise, Tennessee Aquarium, Road Bridge, Chattanooga, Tennessee, America

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Best Places 2018 Rank: 72
Metro Population: 544,522
Combined Local Sales Tax Rate: 9.25 percent

Similar to Knoxville, Chattanooga’s high sales tax rate comes from the state tax of 7 percent and Hamilton County’s 2.25 percent tax rate.

Highest: Salinas, California

Highest: Salinas, California

Strawberry fields in the Salinas Valley of central California juxtapose with urban residential housing in the adjacent foothills.

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Best Places 2018 Rank: 114
Metro Population: 430,201
Combined Local Sales Tax Rate: 9.25 percent

Salinas adds a combined 3.25 percent sales tax rate from Monterey County (0.25 percent), the city of Salinas (1.5 percent) and a special tax (1.5 percent) to California's state tax of 6 percent.

Highest: Memphis, Tennessee

Highest: Memphis, Tennessee

Memphis, TN, USA - August 5, 2015: View of Beale Street in Memphis, Tennessee

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Best Places 2018 Rank: 117
Metro Population: 1,341,339
Combined Local Sales Tax Rate: 9.25 percent

Sales tax rates for Memphis are based on the state’s 7 percent tax combined with the 2.25 percent sales tax for Shelby County.

Highest: New Orleans

Highest: New Orleans

(Getty Images)

Best Places 2018 Rank: 111
Metro Population: 1,250,247
Combined Local Sales Tax Rate: 9.45 percent

While Louisiana has a low state sales tax of just 4.45 percent, Jefferson Parish, where New Orleans is located, charges an additional 5 percent sales tax on purchases.

Highest: Baton Rouge, Louisiana

Highest: Baton Rouge, Louisiana

Baton Rogue at sunset

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Best Places 2018 Rank: 100
Metro Population: 824,667
Combined Local Sales Tax Rate: 9.45 percent

For Baton Rouge, on the other hand, the 5 percent sales tax to accompany the state’s 4.45 percent sales tax comes from the city.

Highest: St. Louis

Highest: St. Louis

St. Louis, Missouri

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Best Places 2018 Rank: 89
Metro Population: 2,803,449
Combined Local Sales Tax Rate: 9.679 percent

St. Louis charges a very specific sales tax rate – to the third decimal. The state of Missouri levies a 4.225 percent sales tax, and the city of St. Louis charges an additional 5.454 percent sales tax, which includes a 0.5 percent tax for public safety funding.

Highest: Fayetteville, Arkansas

Highest: Fayetteville, Arkansas

Fayetteville

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Best Places 2018 Rank: 5
Metro Population: 503,642
Combined Local Sales Tax Rate: 9.75 percent

The state of Arkansas, Washington County and city of Fayetteville all levy a sales tax. Arkansas’s statewide tax tops out at 6.5 percent, while the county charges 1.25 percent and Fayetteville charges 2 percent in sales tax.

Highest: Mobile, Alabama

Highest: Mobile, Alabama

Downtown and Midtown aerial photos of Mobile, Alabama

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Best Places 2018 Rank: 122
Metro Population: 414,291
Combined Local Sales Tax Rate: 10 percent

Mobile is one of three places out of the 125 most populous metro areas in the U.S. that charges 10 percent or more in sales tax. The state of Alabama charges just 4 percent in sales tax, while Mobile County collects an additional 1 percent and the city of Mobile takes 5 percent.

Highest: Seattle

Highest: Seattle

High dynamic image of Seattle skyline in dramatic sunrise colors across pier-66 waterfront

(Getty Images)

Best Places 2018 Rank: 10
Metro Population: 3,671,095
Combined Local Sales Tax Rate: 10.1 percent

Washington’s state sales tax is 6.5 percent, while the city of Seattle places an additional 3.6 percent sales tax on top of that.

Highest: Chicago

Highest: Chicago

Chicago skyline

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Best Places 2018 Rank: 87
Metro Population: 9,528,396
Combined Local Sales Tax Rate: 10.25 percent

Illinois collects a sales tax rate of 6.25 percent, while Cook County adds 1.75 percent, the city of Chicago charges 1.25 percent and a special tax tacks on 1 percent to make sales tax in Chicago a whopping 10.25 percent.

Markets with the lowest sales tax

Markets with the lowest sales tax

Businessman holding money in his hands

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While some places fund their local projects and improvement efforts with sales tax, others get rid of it entirely. As with the places with the highest sales tax rates, these rates are based on the combination of state, county and local sales tax rates in each metro area's largest city, so it’s possible the rate varies in smaller municipalities. The following eight metro areas are the only ones out of the 125 most populous in the U.S. that have combined sales tax rates of less than 6 percent, presented in descending order of sales tax rate.

Lowest: Milwaukee

Lowest: Milwaukee

Milwaukee, Wisconsin

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Best Places 2018 Rank: 70
Metro Population: 1,571,730
Combined Local Sales Tax Rate: 5.6 percent

Milwaukee is just a couple hours north of Chicago, but the sales tax rate is nearly half that of the Windy City. Wisconsin’s sales tax rate is 5 percent, while Milwaukee County charges 0.5 percent and a special tax adds 0.1 percent.

Lowest: Madison, Wisconsin

Lowest: Madison, Wisconsin

A vivid, photo taken from an airplane of downtown Madison, Wisconsin in spring.

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Best Places 2018 Rank: 16
Metro Population: 634,269
Combined Local Sales Tax Rate: 5.5 percent

Without any special tax added to the sales tax rate, Madison has a slightly lower combined sales tax than Milwaukee, with just Wisconsin’s 5 percent sales tax and Dane County’s 0.5 percent sales tax.

Lowest: Portland, Maine

Lowest: Portland, Maine

Portland Head Light in Cape Elizabeth, Maine is one of the best Maine lighthouses

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Best Places 2018 Rank: 27
Metro Population: 523,874
Combined Local Sales Tax Rate: 5.5 percent

As the largest city in Maine, Portland maintains a low sales tax rate by keeping the rate determined by the state – 5.5 percent – without adding any local taxes.

Lowest: Richmond, Virginia

Lowest: Richmond, Virginia

USA, Virginia, Richmond, Cityscape at evening

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Best Places 2018 Rank: 54
Metro Population: 1,258,158
Combined Local Sales Tax Rate: 5.3 percent

Virginia’s sales tax of just 4.3 percent and the city of Richmond’s additional tax of 1 percent combine for a low sales tax rate of 5.3 percent for the state capital.

Lowest: Honolulu

Lowest: Honolulu

Sunrise at Waikiki Beach, Hawaii

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Best Places 2018 Rank: 35
Metro Population: 986,999
Combined Local Sales Tax Rate: 4.5 percent

Hawaii keeps its state sales tax low at just 4 percent. With the addition of Honolulu County’s 0.5 percent sales tax rate, the city of Honolulu sees a total sales tax rate of 4.5 percent.

Lowest: Manchester, New Hampshire

Lowest: Manchester, New Hampshire

Manchester is the largest city in the state of New Hampshire and the largest city in northern New England. Manchester is known for its industrial heritage, riverside mills, affordability, and arts & cultural destination.

(Getty Images)

Best Places 2018 Rank: 37
Metro Population: 404,948
Combined Local Sales Tax Rate: 0 percent

Manchester is one of three places out of the 125 most populous metro areas in the U.S. that has no sales tax at all. New Hampshire is one of five states – the others being Alaska, Delaware, Montana and Oregon – with no sales tax.

Lowest: Salem, Oregon

Lowest: Salem, Oregon

Capitol Mall

(Getty Images)

Best Places 2018 Rank: 93
Metro Population: 404,997
Combined Local Sales Tax Rate: 0 percent

There may be five states that levy no sales tax, but only two other places out of the 125 most populous metro areas keep the sales tax rate at zero for local taxes as well. Salem is one of two Oregon metro areas with no sales tax.

Lowest: Portland, Oregon

Lowest: Portland, Oregon

Portland, OR, USA - July 16, 2015: People ordering food from the multi-ethnic fast-food vendors in downtown Portland, Oregon

(Getty Images)

Best Places 2018 Rank: 6
Metro Population: 2,351,319
Combined Local Sales Tax Rate: 0 percent

Portland is similar to Manchester and Salem in that there’s no sales tax, but it’s also significantly larger in population. The Portland metro area is home to nearly 2.4 million people and still manages to keep its sales tax at zero.

Read More

Updated on Jan. 16, 2019: This story was originally published on Feb. 22, 2018, and has been updated with new information.

Corrected on Jan. 17, 2019: A previous version of the story did not include additional tax deductions in the $10,000 cap.

Tags: real estate, housing market, home prices, loans, mortgages, home refinancing


Devon Thorsby is the Real Estate editor at U.S. News & World Report, where she writes consumer-focused articles about the homebuying and selling process, home improvement, tenant rights and the state of the housing market.

She has appeared in media interviews across the U.S. including National Public Radio, WTOP (Washington, D.C.) and KOH (Reno, Nevada) and various print publications, as well as having served on panels discussing real estate development, city planning policy and homebuilding.

Previously, she served as a researcher of commercial real estate transactions and information, and is currently a member of the National Association of Real Estate Editors. Thorsby studied Political Science at the University of Michigan, where she also served as a news reporter and editor for the student newspaper The Michigan Daily. Follow her on Twitter or write to her at dthorsby@usnews.com.

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