There are a few things to be aware of about the tax implications of home ownership. The mortgage interest and property taxes paid in a tax year can be used to itemize deductions if it is more than the standard deduction for a given year. There are some limitations with the current tax law that are described below.
The mortgage interest deduction is limited to a mortgage of $750,000 on the federal return for any homes purchased after 2017. Anything above that will be disallowed. California has a slightly different limitation for the mortgage interest. Therefore, you can not take the full deduction for mortgage interest paid if the original mortgage was above $750,000.
On the federal side, property taxes and sales taxes are limited to $10,000 on the itemized deductions with there being no limitation for California.
Utilizing the property as a rental can change the benefit of any tax exclusion.
As for other things to be thinking about, if there are any solar and energy efficient improvements to the house there could be some tax credits you may qualify for. Utilizing the property for a property as a rental can change the benefit of any tax exclusion.
It is also good to be aware that with the current tax law if your home was your primary residence for the past 2 out of the 5 years after being sold you will be able to qualify for an exclusion up to $250k (or $500k if married filing jointly) on the gains realized. We suggest that you retain all receipts and records of all home improvements which would be helpful should you have a large gain in selling the house in the future.
