Monday July 30, 2018
Any homeowner will tell you that owning your home is great because you can paint the rooms any color you choose, make the closets bigger to hold all your stuff in an organized fashion and knock out walls anywhere you please. One of the greatest benefits, however, has nothing to do with style independence and everything to do with saving money.
Tax Advantages of Home Ownership
Renters get no breaks – all their rent money goes directly into the pocket of the landlord, and they are not building equity. Homeowners not only reap the benefits of tax deductions and tax credits, but they also make a solid investment in their future.
How These Tax Breaks Work
In tax-speak, there are deductions and credits. A credit is money taken off your tax bill. It works in much the same way as a coupon that takes a certain amount off an item you purchase. If you receive a $1,000 tax credit, your tax bill will be reduced by $1,000. A tax deduction reduces your adjusted gross income, which reduces your tax bill. As an example, if you are in the 35% tax bracket, your tax debt will be reduced by 35% of the total amount of claimed deductions. If you were to claim a $2,000 deduction, the tax amount due will drop by about $700.
Types of Tax Deductions for Homeowners
There are four major types of deductions for homeowners. All of which provide substantial savings to make home owning far more desirable than renting.
- Mortgage interest deduction. This is the granddaddy of deductions for homeowners. It allows write-offs on the interest paid on loans of up to $500,000 for a single tax filer and $1 million for joint filers. This deduction is of most benefit in the early years of a mortgage because the homeowner is basically paying interest only at this stage. Additionally, for joint filers, there is a deduction for interest paid up to $100,000 of home equity debt.
- Property tax deduction. The average American property tax is a bit over $2,000 annually. In New Jersey, Vermont and New Hampshire, it is substantially more. The thing to know about the property tax deduction is that is good only in the year it was paid. If you paid your fourth-quarter taxes for December of 2016 in January of 2017, the deduction would apply to the year 2017, not 2016.
- Points deduction. A borrower can pay points on a mortgage to lower the interest rate. Points are an initial fee paid to the lender when you sign a mortgage. One point on a mortgage is equal to 1% of the loan value. If you sign for a $200,000 mortgage and pay one point, you will give your lender an extra $2,000. This $2,000 is tax deductible if the loan is on your primary residence.
- PMI deduction. If your down payment was less than 20% of the loan amount, you will probably be charged for PMI, or Private Mortgage Insurance. PMI is often equal to 0.5 to 1% of your loan value. The $200,000 mortgage will cost $1,000 to $2,000 in PMI. If your annual income is $54,000 or less as a single filer or $109,000 or less as joint filers, you can take the total amount of PMI as a tax deduction.
If you have finally decided to invest in your home for the independence and tax savings that go along with homeownership, you could do no better than to contact Landmark 24 Homes. We offer a wide variety of floor plans, architectural styles and communities to suit every taste and budget.