Owning a home can help you build equity and put down roots. It’s also a smart way to save on taxes, especially if you’re a doctor looking to move states.
The problem is that many doctors miss out on deductions and tax credits simply because they don’t have the right information.
If you’re a self-employed physician, have a side income, or invest in real estate, homeownership comes with tax benefits that allow you to keep more cash in your pocket.
Read to learn about seven important benefits of owning a home.
Key Takeaways
- Home office costs include rent, supplies, and essential equipment expenses.
- Professionals face recurring costs like licensing, board exams, and continuing education.
- Malpractice insurance and staff salaries significantly impact operational budgets.
- Taxes and ongoing fees are critical to consider for financial planning.
Table of Contents
1. Business Income Tax Deductions
If you’re a self-employed physician or operate a pass-through business like a sole proprietorship, partnership, LLC, or S-corp, you could be eligible for the qualified business income deduction (QBID).
QBID helps you deduct up to 20% of business income and claim the following itemized deductions:
- Home office costs
- Renting or leasing costs
- Office supplies and equipment
- Medical uniform and equipment
- Licensing and license renewal fees
- Board exam fees
- Continuing education costs
- Malpractice insurance premiums
- Employee salaries and benefits
- Local and state taxes
If you own your practice building, you can also claim up to 20% of your rental income as a tax deduction.
2. Mortgage Interest Deduction
If you’ve purchased a home and have a mortgage, you can deduct the interest paid on your loan from your taxable income. The home mortgage interest deduction (HMID) applies to:
- Both primary and secondary residences
- Loans up to $750,000 (married; joint filing) or $375,000 (married but filing separately)
As an example, if you purchased a home for $1 million in a high-cost housing market and you financed it with a $750,000 mortgage at a 5% interest rate, you’ll pay $37,500 in interest in the first year.
Since your mortgage falls within the $750,000 limit, you can deduct the full $37,500 from your taxable income.
If you fall within the 35% tax bracket, this deduction will lead to tax savings of around $13,125. You can allocate this money you saved toward your student loans or CE.
3. SALT Tax Deduction
Physicians can use the state and local tax (SALT) deduction to deduct property plus local or state income taxes they’ve already paid to state and local governments (but not both at the same time).
This deduction is capped at $10,000 for joint filers and $5,000 for those married but filing separately.
SALT applies only to primary or secondary residences, and you need to itemize to claim it.
For example, let’s say you paid $10,000 in annual property taxes and $6,000 in state income taxes when filing your returns last year at an income tax rate of 24%.
If you apply for the SALT deduction, you could reduce your income tax liability by $10,000 x 24%, which will be $2,400.
4. Accelerated Depreciation
If you own investment properties as a physician—even if your work locum tenens—you can segregate the costs of an investment property into specific components like landscaping, appliances, or fixtures to shorten the depreciation timeline for these assets.
This cost segregation method helps you claim larger deductions earlier, such as five years instead of the standard 239-year schedule for residential properties.
To put it into perspective, if you own a home worth $600,000, you can use cost segregation to identify $120,000 of assets that you can depreciate faster. This can help you deduct $24,000 annually from your taxable income.
5. Home Sale Exclusion
If you’re selling your primary home, you can save on taxes if you qualify for the home sale exclusion.
This allows you to exclude up to $250,000 of capital gains from your income if you’re single or $500,000 if you’re married and filing jointly.
To take advantage of this exclusion, you need to meet the ownership and use tests:
- Ownership test: You must have owned your home for at least two years during the five years leading up to the sale
- Use test: You need to have lived in the home as your primary residence for at least two years during the same five-year period
You can qualify as long as both tests are satisfied within the five-year window. However, you won’t be eligible for this exclusion if you’ve sold a home in the previous two years.
To understand this better, let’s say you bought a home for $400,000 and lived there for three years before selling it for $700,000.
Depending on which exclusion you qualify for, you won’t have to pay any—or a significant amount of—capital gains taxes on the $300,000 profit.
6. Mortgage Points Deduction
When you bought your home, you may have paid mortgage points to lower your loan’s interest rate. Each point usually costs 1% of the total loan amount.
If you pay for your points upfront, the IRS allows you to deduct this cost on the first $750,000 of debt from your taxes. However, this requires that:
- The loan must be for your primary residence
- The points have to be paid directly to reduce the interest rate
- You must have paid for the points yourself
If you meet all these conditions, you can deduct the full cost of the points in the year you paid them.
To put it into perspective, if you buy your primary home with a $400,000 doctor’s mortgage and pay for two points upfront—about $8,000—you’ll deduct the full payment from your taxable income.
If you’re in the 35% tax bracket, this deduction saves you $2,800 in taxes.
7. 1031 Exchange
The 1031 exchange helps you defer paying capital gains taxes when you sell an investment property—as long as you reinvest the proceeds into a “like-kind” property.
For example, you can exchange an apartment building for raw land or rental property for commercial office space.
The benefit here is tax deferral—you won’t owe taxes on capital gains from the sale as long as you reinvest the proceeds into a new property that meets the IRS rules.
These include:
- You can’t touch the proceeds from the sale, so they need to be held by a qualified intermediary
- You have 45 days to find up to three replacement properties after selling the original
- You must close on one of the properties within 180 days of selling the original
If you meet all these rules, you can upgrade your investment properties, diversify your holdings, and move your portfolio into different markets (such as when you open a practice in another state), without triggering an immediate tax bill.
Find Out What Tax Benefits You Could Be Eligible for With Physicians Thrive
Your home is a place you can call your own, but it’s also a chance to make your money work smarter for you.
With strategies like deducting mortgage interest and 1031 exchanges, you can free up cash to pay your student loans, save for retirement, or even buy another home.
If you’re unsure about where to start or whether you qualify for the tax breaks above, we can help.
At Physicians Thrive, we make it easier for you to take advantage of the tax benefits that come with owning a home.
Our team helps you understand whether you should itemize your expenses or go for a standard deduction, how to lower capital gains taxes, and how to make the most of your mortgage interest deductions.
You’ve worked hard to build your career—let us help you keep more of what you’ve earned. Reach out today to make sure you’re not leaving money on the table.
