Everyone feels that homeownership is the ultimate American dream and for many this can be a rite of passage, a sign of a stable household and security for the future. It’s still one of the best ways to invest your money for the future. Not only does homeownership offer a sense of pride and stability but it can offer numerous tax benefits as well. Here some of the best tax benefits to homeownership.
You’ll always have property taxes when you purchase a home and every time you pay down your mortgage, both state and local taxes can be deducted. Real estate taxes are only deductible in the year there actually paid to the government however. If your lender held in escrow money for taxes due the next year, you can’t take the deduction this year. However, mortgage lenders are required to send an annual statement to borrowers by the end of January each year reflecting the amount of mortgage interest and taxes that you’ve paid over the previous year. These taxes could be several thousand dollars that you could deduct, adding up to your federal return, state return or lowering the amount owed.
Mortgage interest, or the interest that you pay based on your rate on a first or even a second home is fully deductible. There are limitations however: loans up to $1 million, home equity loans up to $100,000 and if you are married file separately. If this is the case, these limits are split in half.
The concept of an acquisition loan means that you must buy, construct or substantially improve the home. If you refinance for more than the outstanding indebtedness, the excess amount does not qualify as an acquisition loan unless you use the entire access to improve or renovate the home.
You want to speak with your tax advisor on how much of your mortgage interest you can actually deduct. If you use a software system such as TurboTax or Tax Cuts, you can enter this amount in the specified box and the software will determine whether or not you can deducted and to what degree.
When you apply for a loan many lenders will allow you to pay one or more points in order to get that loan. The points are worth 1% of the purchase price of the property. For instance: if you apply for $200,000 loan, each point will cost you $2000. The more points you pay the lower your mortgage interest rate can be. These points can be deducted for the year in which you buy. The federal government even allows points paid by the seller to be deductible by the homeowner. However, points paid to a lender when you refinance are not fully deductible in the year there paid as you have to allocate that amount over the life of the loan.
Being a homeowner has many benefits and one of them is the tax benefits you receive. Yes, you may not be able to call up your landlord when the washer or dryer breaks but there are so many other benefits to home owning that they overshadow renting by a long haul.
For more information please contact Coldwell Baker Shooltz Realty, your Michigan real estate professionals.
Thank you to Tina Dressler for her guest post this week. Stay tuned for more real estate information, tips, advice and valuable details to buying a home, selling your property and enjoying homeownership.