June 2, 2014
Image courtesy of GoBankingRates
Everybody wants to save money! Another advantage of owning a home compared to renting, is the amount you can save each year with homeowner tax breaks while building equity. With rentals, you can do neither!
Before we get started, I want to first thank Becky Carver over at Prime Lending for this information. She can be contacted here.
The United State government recognizes the value of homeownership with relation to societal success. It is so important that the government has decided to promote this status via homeowner tax breaks! Without further adieu, here is a short list of the most common deductions:
1. Capital Gains Exclusion
Allows you to keep up to $250,000 ($500,000 married) in profit on the sale of a primary residence that has been used two of the last 5 years. If you as a single person make a profit on the sale of your home, you are not taxed on the gain up to $250,000! As a renter, you will never be able to profit – but your landlord will!
2. Home Equity Loan Interest Deduction
Allows you to deduct interest on home equity or line of credit loans. This is pretty straightforward. A secondary benefit to homeowners, you can take out a loan based on the value of your house. Again, renters do not have this option!
3. Home Improvement Loan Interest Deduction
Allows you to deduct interest on home improvement loans made for additions or enhancements, rather than maintenance repairs. If you increase the value of your house by adding another room or perhaps installing marble countertops, the government will allow you to deduct the interest on that loan. That’s a pretty good deal!
4. Home Office Expense Deduction
Allows you to deduct a percentage of your home costs related to the proportion of the office to the home. The only kicker here is that it can’t be used for personal purposes EVER!
5. Mortgage Insurance Deduction
Allows you to deduct the premiums paid for mortgage insurance. If you paid less than 20% to purchase your home, you have to pay for mortgage insurance. This tax break is an incentive NOT to pay the standard 20%, making homeownership even easier!
6. Mortgage Interest Deduction
Allows you to deduct the interest paid on your mortgage. Straightforward. Every little bit helps!
7. Purchase Costs Deduction
Allows you to deduct discount points and origination fees even if you didn’t pay for them yourself. How cool is that?
8. Selling Costs Deduction
Allows you to deduct selling costs from capitals gains above the exclusion. Let’s say you bought at $125,000 and sold for $425,000 (woohoo!), you would be exempt from taxes from the first $250,000. The remaining $50,000 in profit can be reduced by commissions paid, title insurance, taxes, fees, staging, etc. After making $300,000 profit, you would only be taxed on $10,000 of it. How can you afford to rent with benefits like this?!
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Hopefully this gives you a good idea of the homeowner tax breaks that are out there. Owning a home may be one of the biggest transactions and most rewarding experiences in your life. Thanks to the government (and real estate lobbyists) for making it easier for everyone to obtain!