Owning a home already has so many benefits, but what about the benefits that come at the end of the year? Here is why we think owning a home is one of the best choices you will make in the long run.
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The interest you pay on your mortgage is deductible. That’s good news for almost every homeowner, because the bulk of your payments go toward interest early on. However, if your loan is more than $1 million, the IRS will limit your deductible interest. Equity debts up to $100,000 are also deductible, so if you obtained a cash-out refinance or got a home equity line of credit (HELOC), you can deduct that interest. Finally, mortgage interest on second homes and other properties is fully deductible.
Part of your monthly mortgage payment is property tax. Property taxes can be deducted each year as long as you own your home. Note that if this is your first tax year in your home, you’ll need to review your settlement information that you received at closing. You’ll have to pay taxes for the time that you’ve been in the home, and the seller will pay for the time they were in the home.
Some home loan programs, such as fixed rate mortgages, allow you to obtain a better interest rate by paying points — a fee that’s equal to one percent of your loan amount. However, you can only deduct points the year that you paid them and if the loan was used for your primary residence, among other things. If you refinanced or took out a HELOC and paid points, you may be able to deduct those under certain circumstances. Contact your tax advisor for more information.
Above all, you should consult a certified tax professional to learn more about the deductions that are available to you. Not everything is tax-deductible, so make sure you receive expert guidance when filing your taxes. Ultimately, taking advantage of the tax benefits that come with owning a home will make your taxes more complicated (you’ll now have to use a Schedule A to itemize deductions if you weren’t already for other potential deductions), but the opportunities it provides to reduce your taxable income could make it all worthwhile.