You hear it over and over again. Buying a home is one of the best investments you can make in your life. Now, with tax season coming up, it’s time to start thinking about what benefits may be available to you as a homeowner!
Let’s go through 5 of the most popular tax benefits that are available for homeowners. These include mortgage interest deductions, property taxes, capital gains on sale or exchange of primary residence, deducting points paid at closing, and using losses from previous years to reduce taxable income.
Mortgage Interest Deduction:
This is the most common tax deduction for homeowners. If you itemize your deductions, then you can deduct mortgage interest and points from taxable income! There are limits to how much of this type of deduction a person can take, so it’s important to consult with a professional before planning your purchase.
This means that if you have an $800/month mortgage payment and live in a place where property taxes are at one percent (.01), then each month, about $24 goes towards paying down money owed on the home loan. Click here for home loans for doctors in Australia. That translates into roughly $288 per year—or more than 30% of what would be paid as a result of being taxed at ordinary income rates.
Property Tax Deduction:
Property taxes include not just an annual tax due to the government but also other expenses which might arise as time goes by such as flood insurance or special assessments to help pay for public improvements in the area. A homeowner can deduct these costs if they itemize deductions at $24k per person who pays them annually with up to $2,000 allowed for use-or-loss carryovers from previous years.
Capital Gains Tax on Sale or Exchange of Primary Residence:
If the homeowner sells their home for a profit, then they may be eligible to pay capital gains tax.
What is a capital gains tax? A capital gains tax is when an individual sells a house for more than they purchased it for. In this example, if you bought a house in 2007 for $150k and sold it last year for $200k (giving you a total profit of $50K), then up to 30% of that $50K profit will be taxed as capital gains.
However, the IRS states that if you have lived in your home and used it as your primary residence for at least 2 years out of 5 previous years before selling it, then you will only owe taxes on part of this gain based on how long you owned the property.
Deducting Points Paid at Closing:
A point is basically just an interest charge paid upfront by the buyer when purchasing real estate. When making these payments all at once, such as with closing costs from buying a new house – points are deducted from taxable income which is then applied to the mortgage interest for the year.
For example, if you buy a new home and are making monthly mortgage payments, then any points paid will be deducted from your taxable income for the year. This may save you money on taxes depending on how much you have to pay due to other deductions or credits that might offset them.
Using Losses from Previous Years to Reduce Taxable Income:
If a homeowner has had years where they have experienced losses in their property, such as when it was sold or destroyed by natural disaster – these can be deducted against current income in order to reduce taxable income and pay fewer taxes this year overall.
For example, if a homeowner sold their property in 2015 for $100,000 but before that it had been worth $150,000 – then they can deduct the difference between these numbers ($50k) against current income.
There Are Even More Benefits to Owning a Home!
Other benefits of homeownership include being able to write off repairs & maintenance costs on your home (which you would not be eligible for if renting), deducting other expenses incurred with owning your own places, like utilities and insurance premiums, and getting more opportunities for tax savings especially if you are self-employed due to deductions related specifically to that industry!
So don’t just think of the purchase price when you are considering buying your first home. Look into how many tax benefits might be available to you as a homeowner, too!
