Episode 58, Segment 2: What Are The Tax Benefits of Owning a Home?
Tax season is upon us, making this question pop up often: Are there many tax benefits to owning a home? While there are definitely tax benefits to home ownership, John's answer to this question may surprise you.
"To be honest, there aren't any HUGE tax benefits to owning a home," John says.
When you file a standard tax return without owning a home, you get a standard deduction. If you do own a home, there are some really great deductions (see list below) - but you only get to deduct the amount that's above what your standard deduction would have been. Oftentimes, that amount only adds up to a couple thousand dollars extra in your tax return.
That said, there are still many reasons that owning a home can benefit you when tax season rolls around:
1. You can deduct your mortgage interest
The tax code allows homeowners to deduct the mortgage interest from their tax obligations. For many people this is a huge deduction, since interest payments can be the largest component of your mortgage payment in the early years of owning a home.
2. Some closing costs can be deducted
If you just bought your home, you are able to claim the points, or origination fees, on your loan, no matter whether they are paid by you or the seller. And because one point is equal to 1% of the principal loan amount, of 1 percent or more are common, the savings can be pretty impressive.
3. Property tax is deductible
One of the biggest costs of owning a home is fully deductible when tax season rolls around. Real estate property taxes paid on your primary residence and even on a vacation home are both fully deductible for income tax purposes.
4. You can deduct your home equity lines
In addition to your mortgage interest, you can deduct the interest you pay on a home equity loan (or line of credit). This allows you to shift your credit card debts to your home equity loan, pay a lower interest rate than the high credit card interest rates, and get a deduction on the interest as well.
5. Mortgage interest is deductible on multiple properties
Mortgage interest on a second home also is fully deductible. In fact, your additional property doesn't have to strictly be a house. A boat or RV can qualify as a property, as long as it has cooking, sleeping and bathroom facilities. You can even rent out your second property for part of the year and still take full advantage of the mortgage interest tax deduction as long as you also spend some time there yourself.
6. No taxes on the profits from selling your home
If you’ve owned and lived in the same home for at least two of the five years before the sale, you won’t pay taxes on the first $250,000 of profit. If you’re married, the number doubles to $500,000, but both spouses have to meet the residency requirement.
7. Renewable-energy tax credit
Going green can certainly pay off. If you’ve installed equipment for your home that uses renewable sources of energy, such as the sun and wind, to help power your home, you may be eligible for the Renewable Energy Efficiency Property Credit. You are eligible for this tax credit up to 30% of the cost of the equipment, installation included, as long as the equipment is placed in service by the end of December 2016.
If you have any questions about your home tax deductions or anything else at all, feel free to give John a call at (512) 524-8310 or email him here.