While we all know that nothing is certain except Death and Taxes, the latter is not quite such a guarantee, particularly for homeowners.
By owning your primary residence, you are eligible for standard tax deductions of $12,550 for single and married individuals filing separately, $25,100 for married couple filing jointly, and $18,800 for heads of households.
Here are the other tax breaks you can take advantage of:
1. Mortage Interest: the interest on up to $750,000 of your home loan is deductible. The majority of first-time homebuyers won’t have a loan that big anyway, so they can deduct all of their interest come tax season.
2. Home Equity Loan Interest: if you own your house and take out a 2nd mortgage for home improvement, you can deduct the interest on this loan, which takes advantage of equity you’ve built in your home.
3. Discount Points: Paying to lower your interest rate when you take out a mortgage? You can deduct the cost of that too!
4. Property Taxes: You can deduct up to $10k of property taxes as a married couple filed jointly, or $5k for single or married couples filing separately.
5. Necessary Home Improvements: While upgrading a working bathroom or kitchen doesn’t fall under this umbrella, improvements for medical purposes (i.e. installing medical equipment or railings) will qualify.
6. Home Office Expenses: Do you own your own business? Do you have an office you work out of at home? You may be eligible to deduct the expenses of maintaining this space. So long as you use that office just for work.
7. Mortgage Insurance: If you put less than 20% on your home, then your lender will require PMI- private mortgage insurance until your Loan to Value ratio comes down to 80%. On your itemized tax return, you can deduct these insurance payments.
8. Capital Gains: When looking to sell your home, if it was your primary residence for 2 of the last 5 years, you can keep up to $250k of capital gains (profit realized from sale) as a single filer or married person filing separately, or up to $500k as a married couple filing jointly.
Though unable to cheat death, there are loopholes in the tax system that reward people who own property. Given the financial benefits, including increase in equity of an appreciating asset, it is better to get your foot in the door of home ownership sooner rather than later. Talk to a First Time Buyer Specialist (yours truly) today. Let me show you how purchasing your first home isn’t so scary after all!