Owning a home is every American’s dream. Furthermore, there are considerable advantages of owning a home. A person who owns a property pays the mortgage interest and local property taxes on his or her home while a person who rents an apartment pays the rent.
However, the renter has to pay an amount to allow the landlord to pay the tax and interest, thus a tenant pay these indirectly. In this regard, the homeowner has more advantage as long as his exemptions, income and other deductions are the same as a renters’, he or she will pay lower taxes.
The tax benefits of owning a home or property was a rooted concept during the 70s and 80s and during those times, it had an overwhelming merit. The rates of mortgage were usually in double digits, marginal tax rates ran up to 70 percent, and the standard deductions were down in thousands. Home ownership made more sense even for moderate-income families.
Some of the advantages of home ownership are the investment value, privacy and tax benefits. One of the biggest tax benefits of owning a home is the interest of mortgage is tax deductible. As you know, a portion of your monthly mortgage due includes an interest paid to your mortgage lender. Right after the first of every year the lenders sends you a statement of the total amount of interest you have paid for the other year and this interest is deductible to a maximum of $1 million, if you file taxes jointly.
In case you have an FHA loan that requires paying of PMI or private mortgage insurance, you can write off a percentage of the PMI on your yearly taxes, which depends on your income. Mortgage points are points, which are usually paid to a lender during closing to be able to lower the amount of the interest paid on a loan, fully tax deductible so long as your home is your main residence.
One point is one percent of the loan amount and you could pay 1 to 3 points at escrow. While you may end up paying $3,000 to $9,000 in points on a home worth $300,000, the amount you pay will considerably lessen your tax liability.
If you pay property taxes several times per year, it can also be deducted from your taxable income. Additionally, if you have a home office or doing a business out of a part of your property, you can write off some of the living space, percentage of the space’s portion of insurance and the costs of repairs. Nevertheless, before taking an office deduction, make sure to consult with your tax advisor since there are stringent rules governing this deduction and could possibly increase the chances of being audited.
In the event that you decide to sell your home and upgrade it, you can deduct some costs associated with selling it, such as title insurance, advertising costs, inspections costs and even the real estates’ commission, which are all tax deductible.
Although this does not hold true nowadays, the tax saving pitch remains. The standard deductions could exceed $11,000, rates of interest are down to 5 percent, and the marginal tax rates out at 38 percent, but considerably lower for most households.