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What Are the Tax Benefits of Owning a Home?

Homeownership is part of the American dream. It always has been. It’s an ideal that’s inspired millions — just like you — to take on a mortgage and leverage the tax rewards that come with it. You may be aware that you’ll get a tax break for buying a house, but do you know about the other tax benefits of homeownership?

There’s a lot to learn about buying a house and taxes. From getting the most out of your mortgage loan interest deduction to claiming the price of points you purchased from your lender to bring down your interest rate, there are tangible benefits to owning a home. Does buying a home help with taxes? Yes, it can! And today, we’re going to take a close look at some of the big the tax benefits of owning a home.

Do You Get a Tax Break for Buying a House?

Again — yes, you can. Although the popular first-time home buyer credit expired in 2010, there are many deduction options that can help you get tax breaks from a home purchase. First off, there’s the home purchase tax credit you’ll be able to leverage through your mortgage interest deduction.

Another home purchase tax break can come in the form of deducting your private mortgage insurance interest payments, escrowed costs, home office expenses, and even state and local tax payments. Like all financial decisions, it’s key to review your personal tax strategy with your CPA or tax attorney before taking any action.

Tax Deductions for Homeowners

Your property tax deductions are write-offs you can use to pay down what you owe on your annual state and federal taxes. And in some cases, you may qualify for a refund. State and locally assessed property taxes, which are based on the overall value of your home may be deductible, but there are other ways to qualify for deductions, too.

Here are a few common examples of tax breaks you may qualify for after purchasing a home:

Mortgage interest

Of all the tax implications of buying a home, few are more popular than the coveted mortgage interest deduction. Because the early years of paying off a mortgage are heavy with lender interest payments in addition to paying down the principal on the loan, new homeowners often take refuge in the fact that they’ll be able to write off their mortgage interest payments.

The interest you’re paying on a home equity line of credit may also be deductible, so be sure you’re working with your accountant to get the full array of interest payment benefits available to you.

Property taxes

Deducting your property taxes is another big benefit of being a homeowner and that benefit can extend to other real estate you own and pay property taxes on — like vacation homes. At tax time, simply gather your tax records from last year and carefully look over receipts for tax payments made and put those aside for review and inclusion by your CPA.

Mortgage points

If you paid down your interest rate when you closed on your home by paying a fee to your lender, that cost may qualify as a deduction on your taxes. Although buying down your interest rate may seem costly at closing, you may be able to save thousands of dollars over the life of your loan. And because you’re able to write off some or all of that expense, it’s a great way to invest briefly until you can get refunded for that expense later at tax time.

PMI (private mortgage insurance)

If your home’s loan-to-value ratio is below 20 percent, you’ll likely pay a PMI fee every month. PMI is typically an insurance cost you can write off on your taxes. In most cases, you’ll pay into your PMI escrow every month and those funds will cover the annual premium when it comes due. Be sure your accountant has a copy of your PMI payment records when filing your taxes to benefit from this deduction.

Home office expenses

If you work from home — or own your own business that’s operated out of your home — you may be able to deduct your home office expenses in your taxes. But the tax benefits may not stop there. You’ll likely be able to deduct a percentage of your property taxes, homeowners and business insurance costs, in addition to other utility expenses incurred by your home enterprise. It really can pay to save your receipts and itemize your business deductions.

Selling your home

This last one may come as a pleasant surprise: you may be able to deduct expenses paid during the sale of your home. Because your home can be considered a capital asset, you may be able to leverage a benefit at tax time depending on the length of time you’ve lived in your home and the amount you sold it for as well. Your accountant can help you navigate these potential deductions incurred when you closed on the sale of your home.

Here are a few examples of fees and expenses you may be able to deduct after the sale of a home:

  • Advertising costs
  • Legal fees
  • Title insurance expenses
  • Administrative costs
  • Escrow fees
  • Inspection fees
  • Transfer taxes
  • Stamp taxes

Ready to Buy a Home?

Buying a home is a big decision and it’s often one of the biggest investments you’ll ever make. That’s why it’s so important to do your homework and understand how to recoup those out-of-pocket expenses every year. Our first-time home buyer’s guide is a great way to help orient you on financing the home of your dreams.

While you’re considering your homeowner tax options, be sure to reach out to your American Family Insurance agent and request a quote. You’ll find they can help customize your homeowners policy to match the needs of your new home. It’s protection that can bring you a lot of peace of mind.

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Related Topics: At Home , Home Insurance , Owning A Home , Renters