You may have just finished filing your taxes, and had to pay more to Uncle Sam than you would like. You have been thinking about buying a home, but are not sure you are ready for that big undertaking. This is the time to think about the tax benefits you can enjoy being a homeowner.
Mortgage Interest Deduction
When you take out a mortgage loan for a home, the majority of what your paying in the early years of your loan is interest. That means that very little of your money is going into the equity of your home, or what you actually own. The mortgage interest deduction is typically the largest tax break available to homeowners. With this deduction, you are able to write off interest up to $500,000 loan as a single tax filer or a $1 million loan if you are a joint filer. This is a terrific break as a homeowner as you can use that extra money to put towards the equity of your loan.
Property Tax Deduction
Most Americans pay a little more than $1,000 in property taxes each year. In some states that tax is even higher. When you pay property taxes, you are eligible to take a larger deduction on your taxes. Just remember that if you pay your property taxes quarterly, you can only deduct what you have paid in that calendar tax year.
Depending on what type of mortgage you obtain when purchasing your home, you may have paid points in exchange for a reduced interest rate. Points are an up-front fee you give the lender. One point is equal to 1% of your loan. These points can work as a tax deduction.
Home Office Deduction
If you work from home, the home office deduction could save you some money on your taxes. The IRS lets you write off a portion of the expenses (electricity, water, and internet) that enable you to conduct business from home. To qualify for this deduction your home office needs to be a dedicated space reserved for business only. The IRS probably won’t check up on you, but better safe than sorry.