As a homeowner, there are numerous advantages over renting. First, no landlord knocking at your door asking for the rent. You can also paint your living room any color you want – unlike the days of being a tenant! But the benefits don’t stop there! That’s because when you own a home, you will also have several financial advantages that come in the form of tax deductions – and in some cases, these may be fairly substantial.
Some of the primary tax deductions that can be taken as a homeowner include the following:
First and foremost, you can deduct the amount of mortgage interest that you’ve paid throughout the year – within certain limits. For example. For those who are married and filing jointly can deduct all of the interest payments on the maximum of $1 million in mortgage debt that is secured by a first or a second home. (If you are married and filing separately, you can deduct half this amount).
If you paid points in order to obtain your home mortgage, then you can also fully deduct the points that were associated with this purchase. If you paid points to refinance your home, then the points are also tax deductible, but the deduction must be taken throughout the life of the loan as versus all at once.
Home Equity Loan Interest
If you have taken out a home equity loan or a line of credit, you may be able to deduct some of the interest that you paid on this. There is, however, a limit on the amount of debt that may be treated as home equity, based on your tax filing status, as well as the fair market value of your home.
If you pay property taxes, these are considered fully deductible from your income on your annual tax return. In some cases, individuals may have the amount for these taxes held in an “escrow” account. Here, the funds may not be deducted until they are actually used to pay the property tax.
There may be other items that are tax deductible, too, such as the interest on a home improvement loan, home office expenses (if you work from home), moving expenses (if you moved during the year because you got a new job), and / or the mortgage tax credit.
Basic information for first-time homeowners can be found in IRS Publication 530. Check for these and other possible tax deductions that could reduce the amount owed, or increase the amount of the refund you receive from Uncle Sam. If you are in the market to buy or sell your home, give us a call. It’s what we do.