Tax Advantages for Washington State Homeowners Before Year-End
Owning a home in Washington State offers more than just a place to call your own—it’s also a financial asset that comes with valuable tax advantages. With 2024 coming to a close, now is the time to ensure you’re making the most of these benefits. Whether you’ve recently purchased a home, are preparing to sell, or are maintaining your property, these tax-saving strategies are tailored for homeowners in the Evergreen State.
1. Deducting Mortgage Interest
Washington homeowners with a mortgage on their primary or secondary residence can often deduct the interest paid over the year. This applies to loans up to $750,000 for joint filers ($375,000 for those married filing separately). Given the state’s high home values, this deduction can be a significant benefit, especially for first-time buyers or those with recent refinances. Be sure to collect Form 1098 from your lender, which details your total interest paid in 2024.
2. Property Tax Deductions
In Washington, homeowners can deduct state and local property taxes, up to a combined total of $10,000 ($5,000 if married filing separately). Given the region’s rising property values, this deduction is a key opportunity to save. If you’ve recently sold your home, confirm all property taxes are paid before December 31 to claim the maximum deduction. For buyers, review your closing documents for prepaid property taxes that might already be eligible for deduction.
3. Energy Efficiency Incentives
Washington State’s focus on sustainability means homeowners can benefit from both state and federal incentives for energy-efficient upgrades. Qualifying improvements, such as solar panels, efficient windows, or upgraded insulation, may qualify for the federal Residential Clean Energy Credit, which allows a 30% deduction on costs. Additionally, local utility companies like Puget Sound Energy often offer rebates for energy-efficient installations—double-check for opportunities to stack these benefits.
4. Capital Gains Exemption for Sellers
If you sold your Washington home this year, you may be eligible to exclude up to $250,000 ($500,000 for joint filers) of profit from your taxable income. To qualify, you must have lived in the home as your primary residence for at least two of the past five years. Keeping records of home improvements can also increase your property’s adjusted cost basis and reduce taxable gains—a critical strategy in Washington's competitive market.
5. Prepaid Mortgage Points
If you bought or refinanced a home this year and prepaid points to reduce your mortgage rate, those costs may be deductible. This is especially beneficial for Washington buyers who locked in long-term rates to offset the state’s higher property prices.
6. Considerations for Washington’s Local Taxes
While Washington doesn’t impose a state income tax, its higher sales tax and other costs make federal deductions for property-related expenses even more valuable. Sellers should also be aware of Washington’s real estate excise tax (REET) and how it might impact net proceeds; planning for these costs with a tax advisor can help offset them.
Why Act Before December 31?
Many tax advantages hinge on payments and actions completed before the calendar year ends. December is your last chance to finalize mortgage payments, prepay property taxes, or make energy-efficient upgrades to maximize deductions for 2024.
Washington’s dynamic housing market makes understanding these tax benefits even more important. Consult with a local tax professional to ensure you’re optimizing your financial strategy and meeting all IRS and state-specific requirements. With a little planning, your homeownership in Washington can go beyond being a lifestyle choice—it can be a major financial win.
