Many Northern Virginia homeowners have seen the value of their properties surge during rising inflation.

When the Consumer Price Index pushes higher, home prices tend to increase. In the last year, U.S. inflation has risen by 8.3%, and housing prices in Virginia have shot up 9%; housing costs are one of the primary elements affecting the inflation rate.

Rising Prices May Not Benefit Northern Virginia Homeowners in Every Respect

Although rising home prices benefit homeowners in many ways, when it comes to taxes and insurance, that is not necessarily the case.


Inflation Can Make Home Gains Taxable

Home sale profits are considered capital gains and can be taxed at federal rates between 0% and 20%, depending on the homeowner’s income. 

Home sellers can exclude all or part of the gain from taxation; however, contrary to many provisions in the tax code, the dollar value of the exclusion has not changed since the Taxpayer Relief Act of 1997, meaning these dollar amounts are not increasing with inflation.


With the substantial increase in home prices recently, many homeowners’ profits may be partially taxable. 

Single people selling a primary residence can exclude up to $250,000 in gains from taxation; that number increases to $500,000 if owners are married and filing jointly. 

If you can exclude the entirety of the gain, reporting the transaction on your tax returns is unnecessary unless the IRS sends you a Form 1099-S. If you cannot exclude the entire gain, you have to report the sales transaction. 

Inflation Can Decrease Your Insurance Coverage

Have you checked with your insurance carrier to verify your coverage is keeping pace with building costs and inflation?

If you are like most Northern Virginia homeowners, the answer is probably a resounding no.


According to a recent survey conducted by the American Property Casualty Insurance Association (APCIA), only 30% of U.S. homeowners have increased coverage limits to counterbalance rising building costs, and only 40% updated their insurance policies to account for higher home values.

Karen Collins, assistant vice president of personal lines at APCIA, says, “It is critical that homeowners make sure they have the right amount and right types of coverage during this period of significant inflation, but unfortunately our survey shows that many individuals may not be properly prepared.” 

Homeownership and the IRS

Homeownership offers significant tax breaks. However, most homeowners aren’t making full use of these benefits. 

Homeowners who itemize their tax returns can deduct mortgage interest and property taxes, although property taxes cannot always be deducted in full because they are included in the SALT category. The SALT category, which covers state and local taxes, is capped at $10,000 per tax year and is not indexed to inflation. 

In contrast, the standard deduction has become more generous to homeowners in recent years and, unlike the SALT category, it is indexed to inflation. 


In the 2021 tax year, the standard deduction rose to $12,550 for singles, $25,100 for married couples, and $18,800 for a head of household with higher amounts applying for taxpayers 65 and older or blind.

In spite of the potential benefits, according to the IRS, only approximately 13% of taxpayers itemize, although the nation’s homeownership amounted to 65.4% in the first quarter of 2022


The Bottom Line for Northern Virginia Homeowners

To sum up, Northern Virginia homeownership offers a plethora of benefits; however, tax breaks may not be among them during times of inflation.

Additionally, wise homeowners should speak to their insurance carriers and check their coverage limits to ensure they are appropriately protected. 


Khalil El-Ghoul

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