The Tax Benefits of Home Ownership
Owning a home is the ultimate dream of many people. The home is an asset that will bring about many benefits for the homeowners. Other than being an investment and providing security for your family members, another benefit of home ownership is the tax benefits.
Tax deductions for homeowners are often cited as one of the most important aspect of owning a home. If you are clueless about the tax benefits, here are some pointers to consider.
“You can only be as good as you dare to be bad.” — John Barrymore
Mortgage Interest
It is pivotal to bear in mind that the interest paid on the home mortgage loan is tax deductible. Since interest payments are normally the largest component of the mortgage payment in the earlier years of home ownership, there can be substantial savings of thousands of tax dollars for your annual income tax. One can deduct the interest that is paid on debt resulting from a loan that is used to build, improve or purchase a home. This is on the basis that the loan is secured by your primary residence. Interest can also be deducted on home equity loans or lines of credit. However, bear in mind that special rules apply for special cases or if you rent out the home.
Property Taxes
When you are buying your first home, the property taxes paid are also fully deductible for income tax purposes. For people who pay their property taxes through escrow account, the taxes can only be deductible by the legal homeowner. One can only deduct the property taxes that are paid by your lender from the escrow account. Different rules for tax benefits will apply for second homes as well as investment properties.
Tax Breaks for Selling Home
Another major tax benefit is the exclusion of capital gains for the sale of the residing home. Depending on the tax laws, there can be an exemption fo taxes of a gain of up to $250,000 for selling the home. While the purchase of the home may not be deductible, it can certainly help reduce the taxes on your gain when selling off the home.
Buying a home is certainly a major decision in one’s lifetime. Even though the rules on the tax benefits of the home ownership can be be confusing, especially for first timers, it is definitely worthwhile to make the effort in getting them right. Make the most of these tax benefits to reap the full advantages of home ownership.