There are several benefits you can enjoy when you become the owner of a house, and some of them are tax-related. In this post, we will take a closer look at those benefits and how to act on them.
Most of the time, your realtor will point out these types of benefits to new home buyers, especially if they are first-time buyers. We wanted to investigate to find out whether these claims are true or just a sales trick to persuade you to buy.
Read with us to find out what the real tax benefits are if you are a homeowner. Let’s get started!
What Are These Benefits?
There is quite a list of benefits of owning a house of your own, but we are only going to take a look at the tax-related ones. While paying your taxes is necessary, there are ways you can use the costs of your home as a tax deduction.
Interest On Your Mortgage
If the mortgage on your home is less than 750,000 dollars, you can deduct the interest you pay on the loan. This is one of the main benefits of owning a home over renting your living space.
If you bought a house before December 15, 2017, the limit on a home loan is still 1,000,000 dollars. That means you can still deduct the interest paid on that amount, and you can also deduct the interest you paid on the home closing.
Even with the new TCJA rules, you can still deduct some of your property tax as part of the benefits of owning a home. You can deduct up to 10,000 dollars of the total amount of your property tax on all of your properties.
This new rule will apply until 2026, but if it is not extended, it will go back to the way it was before 2017. If you paid the property taxes directly to the municipality you live in, you need to keep the records yourself.
Tax Deduction For Points
This is only applicable if you paid points to the lender at the time you got your mortgage from the lender. If you paid money to the lender for those points, you can use that amount and take advantage of the tax deduction.
According to the IRS, you can now deduct points paid only over the lifetime of a new mortgage. If you use part of the refinanced proceeds to improve your main house, you can deduct it in the same year you paid for it. This may sound a bit technical, but you can get more information about these mortgage points here.
Private Mortgage Insurance
This is a fee you will pay if you paid less than 20% of the value of the new home as the down payment. If you applied for the mortgage after 2007, you can claim the tax deduction for private mortgage insurance.
You can only claim this if your adjusted gross income is 100,000 dollars or less for a married couple. For a single person, you should have an income of 50,000 or less to be eligible to claim with the current tax law.
Benefits When Selling
If you decide to sell your house at some point to buy another one, there are also some tax benefits involved for you. This will benefit you if you have lived in your main home for more than two years but less than five.
If you are married, you can be excluded from paying taxes on profits made of up to 500,000 dollars. Single people can be excluded for up to $250,000 in profits made on the selling of your primary residence.
Even though most of the benefits of home upgrades are gone, you can still claim deductions on solar energy upgrades. You should claim as soon as you make the upgrades for optimum benefits on these types of upgrades.
As you can see, there are a lot of great tax benefits if you decide to invest in buying a home in the near future. You should also research on your own to see if there are more benefits for people who own more than one property.