US Homeownership for Australian Expats

Learn the benefits and drawbacks of owning a home in the US as an Australian expat.

Mortgage Interest Deduction

You can deduct mortgage interest from your taxable income, a benefit you don’t get in Australia. This deduction is limited to $750,000 of mortgage debt. or $1 million for older mortgages at the Federal level and can be different at State levels). For instance, if you had a $1,000,000 mortgage and paid $40,000 in interest, you could claim $30,000 as a mortgage interest deduction. This alone could be higher than the standard deduction, reducing your tax burden each year.

Property Tax Deduction

Homeowners can deduct state and local property taxes paid on their primary residence and additional properties they own when itemizing deductions. At the federal level, this deduction is capped at $10,000 per year. By itemizing and having substantial deductions to exceed the standard deduction, you can further lower your tax burden.

Mortgage Tax Deduction

Homeowners who paid points (prepaid interest) to obtain a mortgage may be eligible to deduct these points over the life of the loan. Typically, specific criteria must be met, and the points should be within the range commonly charged in the area.

Capital Gains Exclusion

Selling a primary residence may qualify homeowners for a capital gains exclusion. If the homeowner lived in the home for at least two of the past five years before the sale, they can exclude up to $250,000 of capital gains (or $500,000 for married couples filing jointly) from their taxable income. While advantageous in the US, this is a drawback compared to the Australian tax rules of having no capital gains tax at all when selling your primary home.

Energy Efficiency Tax Credits

Homeowners may be eligible for tax credits for installing energy-efficient improvements in their homes. These credits vary depending on the type of improvement and are subject to specific limits.

Concluding Thoughts

As an Australian expat in the US, being aware of the potential deductions and benefits of homeownership is crucial when considering your living circumstances. It’s essential to stay informed about current tax laws and regulations, as they can change over time. If you plan to move back to Australia, the timing of selling your home can impact your tax reporting obligations, making it advisable to consult an international tax professional well-versed in both tax systems. By understanding the tax benefits and drawbacks, you can make well-informed decisions to optimize your financial situation as an Australian expat in the US.