Besides having the freedom to paint your walls fuchsia, adopt a pit bull, or avoid the downsides of renting in general, there are some significant tax benefits of owning a home. Like the mortgage interest deduction, some are well-publicized, but Zillow has a list of 8 tax breaks, not all of which the average homeowner is aware of.
Mortgage Interest Deduction – the “Big Kahuna” of homeowner perks. It’s no secret why nearly every housing and tax reform proposed to carve out the mortgage interest deduction. Considering that during the first few years of a typical mortgage the lion’s share of each monthly payment, taking advantage of this deduction can save you thousands, as you can deduct all of the interest (on second homes as well) up to $1 million (up to $100k for home equity loans).
“Points” on your mortgage – it’s not just the interest you can deduct; you can also deduct the “points” you pay on your mortgage for your primary residence (and home equity loans). “Points” refers to the extra cash (1 point = 1% of your loan) you pay at closing to lower your interest rate.
Property taxes – You can deduct taxes on your taxes!
Home office – If you have a home-based business, though complicated to calculate, this tax break could be worth the trouble.
Energy credits – New windows, energy-efficient AC/heating systems, insulation, etc., are all eligible for a 10% rebate on your taxes, up to $500. Significant savings for a solar system.
Medical home improvements – If you need to add a chair lift or other medically necessary improvements, you can save on your taxes; however, according to Zillow, “you can deduct only that portion of your medical costs that exceed 10 percent of your adjusted gross income (7.5 percent if you are 65 or older). And in most cases, you can deduct only the difference between the cost of the equipment and the increase in value to the home from this improvement. Some improvements (such widening doorways to accommodate a wheelchair) add no marketable value to the home but are fully deductible if you meet certain income requirements.”
Save when you sell! When you sell your home, you might be able to deduct real estate agent’s fees, advertising, and title insurance from that year’s taxes. Improvements you’ve made to the home could also be deductible after the sale.
Natural disasters – If you suffer an earthquake, fire, flood, or another disaster, and you’re uninsured, and the damages are over 10% of your annual income, you may be eligible.
Bottom line – it pays to be a homeowner! Beyond building wealth and security for your family, having a home of your own can make tax season a little less painful.