The Tax Advantages of Buying a Home
Mortgage Interest Deductibility
The interest that is paid on a mortgage and property taxes are deductible from taxable income when it's time to pay income taxes. In the early years of a mortgage, most of the mortgage payment goes to interest and taxes, so for many homeowners the savings really add up. Mortgage interest is the largest single deduction available to most taxpayers. In some cases, that deduction can make owning a home more affordable than renting.
Tax Advantages of Home Ownership
The US government allows tax incentives that make it possible for many homeowners to exceed the standard yearly deduction. Your state may offer the same benefits.
- A tax deduction for the yearly interest on your primary and vacation home. This amount equals a big chunk of your total payments for the first several years.
- You can deduct the total amount of your yearly property tax bill.
- If you refinance to consolidate other debts, the interest on the home equity loan is tax deductible.
There are many tax advantages to buying a home. You may be eligible to deduct :-
- Primary mortgage interest payments (if they exceed your standard deduction), generally up to $1 million. You should receive an annual summary from your lender, which you want to submit to the IRS with Form 1098, the Mortgage Interest Statement.
- Local property taxes from your federal taxes.
- Home equity loan interest, generally up to $100,000.
- Capital improvements, if they increase the value of your house. Save receipts and reduce capital gains by the amount. Tax Form 530 is required.
- Loans (and interest on the loans) for major improvements, if you rent out the house.
- Mortgage interest on second homes, if you rent them out.
- Note :- Bathrooms and kitchens add most to the value of your home. Swimming pools and basements rank low on investment return.
- Note :- You may qualify for reduced property taxes if you're elderly or disabled, says The Wall Street Journal Lifetime Guide to Money (Dow Jones & Co. Inc, 1997). Visit your local assessor's office to find out.
- Note :- If you rent out a home for 14 days or less, the income is tax-free, says The Wall Street Journal Lifetime Guide to Money (Dow Jones & Co. Inc, 1997). For rental properties, there can be additional tax benefits.
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