For homeowners tax time is a good time as there are tax benefits that you can take advantage of. These tax benefits, as mentioned below, may make buying your own home more financially feasible.
Subject to a limit and the home being your primary residence, the monthly interest you pay on your mortgage can be deducted from your taxable income. Depending on the size of your mortgage, this could mean massive savings, particularly in the early years of owning your home as interest is the largest component of your mortgage payments.
Whilst most people don’t get excited about paying property taxes on their new home, these fees are tax deductible providing yet another saving.
In the first year you buy your home you are able to claim your loan origination fees as a deductible against your taxable income, assuming the property is your primary residence.
Typically profit accrued on the sale of an asset is subject to capital gains tax. However, homeowners are able to exclude capital gains, up to a limit, from their taxable income when they sell their principal home. Certain criteria needs to be met, but should you meet this criteria, this tax benefit can amount to a substantial savings, providing you with additional equity to purchase your next home.
In the event of a loss or theft which leaves you with an out-of-pocket expense, you may be able to deduct this settlement shortfall from your taxes in the following tax year. Once again this is something you should discuss with your accountant.
There are other tax benefits you may be able to claim such as PMI (Private Mortgage Insurance) if your down payment was less than 20%, as well as home office deductions if you work from home, for example homeowners insurance premiums. Tax deductions can be a complicated subject and is dependent on certain conditions and restrictions being met, so it’s advisable to discuss the tax benefits that may apply to you with your financial advisor.
While homeownership tax deductions are more beneficial to those in higher tax brackets, it is nonetheless a savings to every homeowner and is certainly worth taking advantage of.
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