Owning a home has many benefits, especially in the world of taxes. From points, to interest, to real estate tax breaks, the government finds a multitude of ways to make owning a home an advantage during tax time.
Property Tax Advantage
Property taxes, otherwise known as real estate taxes, are fully deductible.
The most notable tax break is that all mortgage interest, up to a maximum of $1 million dollars, can be deducted on your taxes. If you are married taxpayers filing jointly, make that $500,000.
Your total home equity debt is limited to the smaller of $100,000 (or $50,000 for each member of a married couple if they file separately), or the total of your home's fair market value, less certain other outstanding debts against it.
You can fully deduct points associated with a home purchase mortgage. A point equals 1% of the loan principal. One to three points are common on home loans, which in the end, turns out to be thousands of dollars. Refinanced mortgage points are also deductible, provided they are amortized over the life of the loan. Homeowners who refinance can write off the balance of the old points and start to pay off the new.
Home Equity Advantage
If you take out a loan to make considerable home improvements, you can deduct the interest on this loan. There is no dollar limit on this deduction; nonetheless, the work must improve the value of your home, such as a new driveway, an extra room or a pool, and not simply be minor cosmetic improvements, such as painting, fixing broken windows or wallpapering.
There are also many tax advantages after the initial purchase of your home, such as using a room for a home business, capital gains, selling, capital improvements, moving costs, and other home owning tax advantages. Consult a professional to educate yourself further and learn in-depth about your specific tax situation. If you own your home, there are many tax advantages that can be afforded to you.
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Carrie Reeder is the owner of ABC Loan
Guide, an informational website about various types of loans.