Owning a home grants a number of benefits, particularly financial perks. If you're like most people, a home purchase will be the greatest financial investment you'll make in a lifetime. Besides enjoying freedom from renting or leasing and the security of building equity in your home, there are also multiple tax benefits. Let's explore the most common tax benefits and how you can receive them.
Mortgage Interest Deduction (MID)
While legislation is now being considered by U.S. Congress to reduce or eliminate the mortgage interest deduction for homeowners (MID), this is currently one of the biggest advantages for homeowners. With most home purchases, the total interest can be up to three times as much or more as the actual purchase price of a home! With the mortgage interest deduction, homeowners can take a deduction each year for the interest paid on their mortgage.
For those who meet income requirements (generally for low-income buyers) and who are buying a home for the first time, tax credits of up to 20 percent of the interest may be available.
Making Home Improvements?
If making minor or major improvements to your home, you might qualify for an interest deduction on your home improvement loan. This deduction isn't for repairs such as fixing leaky water pipes or repairing a damaged floor. It must be an improvement that adds value to the home, such as an added room or a complete or partial remodel.
Selling Your Home?
If you're planning to sell your home soon, hold on to receipts for all advertising (newspapers, Web ads, signs, etc). You may be able to deduct these costs along with any legal selling fees, inspections fees and commissions paid to a real estate agent.
Depending on where you live, you might be required to pay property tax. Many counties charge property taxes based on a home's value to help pay for local schools and other county or city services. These may be included as a tax deduction as well.
Home Business Deductions
The number of home businesses has grown tremendously since the onslaught of the Internet. From stay-home moms to dads who want to eliminate their daily commute, new home businesses are opening every day. If you operate a business from home, you can deduct certain expenses, such as office supplies, materials, computers, phones, faxes, office furniture, etc. You can also deduct a percentage of utilities and rent or mortgage amounts, depending on the size of the room(s) being used for your business operations.
Ever-changing Tax Breaks
Year by year, certain tax deductions become available while others phase out. There have been and probably will continue to be energy-driven deductions for homeowners that improve their home with new energy-efficient appliances, building materials, etc. Tax deductions for private mortgage insurance and homebuyer tax credits are temporary, but you never know when these will be implemented again.
Check with your accountant to find out what deductions you may qualify for as a homeowner. You might be pleasantly surprised at how much you can save when tax season rolls around!