Whether you’re a first-time homeowner or planning to move, buying a new home is an exciting process. You may not know this, but there are many opportunities for tax deductions on your home that can put some money back in your pocket. Below are the top three tax benefits of owning a house.
Mortgage Interest Deduction
One of the largest tax benefits of owning a home is the ability to deduct mortgage interest from your Federal Income Tax Return. In other words, if you itemize your deductions, interest that you pay on your mortgage is tax deductible, within limits.
While you can potentially claim a deduction for any interest that you have paid on mortgages, not all interest paid towards a mortgage is tax deductible. It’s best to speak with your lender to determine what exactly qualifies for mortgage interest deduction.
The higher your property taxes are, the larger the deduction you can take on your taxes.
It’s important to keep in mind that you must claim your deduction in the year you actually make your payments. The property taxes, mortgage insurance, and the interest payments that you make are deducted from your taxable income; thus, you pay taxes only on the remaining income. This has the potential to help you save a lot of money over time.
Mortgage Points Deduction
Your mortgage lender will charge you a variety of fees, one of which is called mortgage “points” that you pay your lender at closing to receive a reduced interest rate. Typically, one point is equal to 1% of your loan value.
If you decide to pay points on your mortgage, they may work as a tax reduction. If the mortgage is on your primary home, you may be allowed to take a full point deduction right away. Otherwise, you may still be able to take the deduction, but it will need to be spread out over the life of your loan.
By purchasing points, you can save money in the long run if you stay in the home for a certain period of time, depending on the amount of points you purchase.