Owning a home brings with it tremendous personal and financial benefits. Personally it gives you a sense of grounding and a center where your life can happen. It lets you experience pride and accomplishment as you join the ranks of home ownership. Buying a home is something to celebrate! As you pay on your mortgage your equity (basically the percentage that you own) increases which you can tap into for future expenses if necessary. Additionally even though a house is a major expense, it also comes with some big tax breaks. Here at Military Crashpad® we would never suggest that you purchase a home because of the tax breaks. However keep them in mind as you go through the home buying process. Although this is a short list, if leveraged correctly these deductions can significantly help your bottom line.
The single most significant tax deduction that homeowners enjoy is the mortgage interest deduction, it is awesome. If you itemize your deductions, you can deduct mortgage interest on your primary and secondary home. It can be interest from your main mortgage, a second mortgage, a home equity line of credit or a home equity loan. You can deduct interest whether you live in a house, condo, apartment, RV, or a boat, as long as you have a loan against it.
This interest deduction can be significant. A family that owns a $300,000 home and is in the 25% tax bracket (you can find your tax bracket here) will save $53,000 in taxes during the life of their loan through this deduction. If you’d like to see how much this deduction can save you, check out this savings calculator. If you are a home owner, make sure you are taking advantage of this deduction.
Your total monthly payment for a house is broken down into three sections, the mortgage (loan), taxes (these are levied by your state and city) and home owners insurance. Depending on where you live your property taxes can really cost you. In New Jersey for example property taxes cost 2.29% annually based on the appraised value of your home. On a $300,000 home that would be $6870 annually. Property taxes are one of the expenses that people rarely think of when they buy their dream home. We don’t talk about them but they can be expense. You pay property taxes each year that you own the house, even after your mortgage is paid off.
Fortunately there is a significant tax deduction for this expense. If you itemize your tax return (rather than taking the standard deduction) you can deduct property taxes that you pay on your primary residence. If you pay your taxes through an escrow account (which means you pay them throughout the year rather than a lump sum) only the money that is actually paid toward taxes can be deducted. Sometimes you get a refund from your escrow account so make sure to get this amount just right.
Home Office Deduction
If you run a business out of your home, the expenses you put into that portion of the house (say for a full time office) are deductible. This deduction can only be utilized if you have a dedicated business space in your home.
Deductions and tax breaks are just one of the many perks of owning your own place. As we continue to focus on home ownership here on our blog we want to encourage you to share your stories. What do you love about owning your own place? Post a comment below or feel free to contact us directly.