Tax Advantages of Home Ownership
Buying a home is a big commitment. Between the housework, yard work, mortgage and other upkeep, being the owner of a home might sound like a lot of trouble. However, it is also rewarding in a number of ways–among them, the tax advantages of home ownership.
There are two types of benefits you can receive from owning a home: deductions and credits. Deductions are reductions in the amount of money you have to pay in taxes based on which bracket you fall into; whereas credits are lump-amounts of money awarded to you (subtracted from your tax costs) by the government.
Below are the details of a few of the most important monetary tax advantages of homeownership.
Deduction on Mortgage Interest
The mortgage interest deduction is generally considered the most important advantage of owning a home, considering the fact that it generally saves the homeowner the most money. This deduction reduces the amount of tax money you have to pay each year by slicing the amount you owe due to interest on your mortgage. In other words, it essentially reduces how much of your income is taxable. In addition (though this applies to few people,) you may want to keep in mind that if your house is worth more than a certain amount, your deductible will be limited. There is a one million dollar per year cap on the amount that can be deducted from interest.
Deduction on Property Tax
In addition, the property or real estate tax that you pay is deductible as well. Keep in mind that this deductible is applied to taxes of the year in which you paid your property tax and not the year each year’s worth of taxes is due–meaning that if you pay your property taxes in advance, they will be deducted from the year you paid them. If multiple people own a certain piece of property, the deductible is split equally between them based on how much each person paid in a given year.
Tax Credit on Energy Efficiency Improvements
Yet another advantage of home ownership is the amount of credit you are eligible to receive for weatherproofing your home or making it more energy efficient. This means that in addition to the benefit you will reap from improving your home, some portion of the cost will be subsidized by the federal, state, and/or local government. Check online to see if any similar deals apply to your local or state government.
Deduction When Selling Your Home
Much of the income that you make from selling your home could be non-taxable. If you are filing singly and owned and lived in a home for at least two of the five years leading up to the sale, then you will not have to pay taxes on the first 250,000 dollars of income. If you are married and filing jointly, this amount doubles. One exception to this rule is if you have not been able to live in your home for an extended period of time due to service in the military or some similar circumstance. Then it is possible to earn this deduction even if you have not spent at least two years in your home. It is also possible to earn a smaller partial deduction on income from selling a home even if you have not lived there long enough, if you can prove that you had to move because of a health or employment problem, or divorce.
Learn more about the perks of home ownership, or inquire to learn more about the homes being sold by Blue Marble Properties!