Purchasing a home is one of the most significant investments that you will ever make. Whether you’re a first-time home buyer or you’ve been down the road before, owning your own home comes with many benefits. While some fall into the personal category of creating a dream home that perfectly suits your taste, other perks are financial in nature.
Each situation is unique, so be sure to consult with a CPA or tax professional for their expertise. Here are some of the general tax advantages that come with homeownership.
Common Tax Deductions
Owning a home means that you are likely eligible for a host of tax deductions. These are some of the most common ones with some additional information and explanation:
- Mortgage Interest: Most homeowners are able to deduct their home mortgage interest, except for very rare cases. $750,000 is the yearly cap on the amount you can deduct. You may be able to deduct late fees too. Look for Form 1098 from the IRS that is mailed out in January once the tax year has ended. This will give you a snapshot of the amount of interest that you paid in the previous year. And don’t forget to include the interest you paid during the partial first month of ownership. You can find this on your settlement sheet from your lender.
- Real Estate Taxes: Did you know that property taxes are deductible as well? Good news, they are! You will also find this amount on Form 1098 if you pay your property taxes through a lender escrow account. Those who pay property taxes directly can find the amount on a checkbook ledger or online financial transfer.
- Lender Points: If you paid points to the lender as part of your new home loan (or a refinance), these might be deductible as well. Provided you gave the lender money for these points, they qualify as a deduction.
- Private Mortgage Insurance: If you took out a loan in 2007 or later and put down less than 20% for a down payment, your lender would have charged you private mortgage insurance (PMI). Single buyers whose adjusted gross income is less than $50,000 qualify for the deduction, while married couples qualifying income is $100,000 or less.
The best course of action is to consult with your CPA or tax specialist to determine which tax deductions apply in your situation. With tax season right around the corner, now might be a great time to inquire.
If we can assist you with escrow questions, please reach out. We are here for you!