Tax Advantages of Home Ownership
Home ownership can offer many advantages over renting month to month. Owning property provides many intangible advantages such as sense of pride and accomplishment. It’s the equivalent of being one’s own boss, only with the daily workings of managing a home. For both good and bad, there are no landlords to answer to concerning design and maintenance. Of course, home ownership can provide many great tangible financial assets as well. There are many great advantages to owning verses renting. Ownership can provide steady income and equity. Another wonderful benefit of is its many great tax advantages of home ownership .
Although renting property means that someone else has to worry about deferred maintenance and general upkeep, that money is essentially gone without further benefitting the renter. One of the main benefits to buying a home is the fact that tax deductions are now available to anyone who enters into a mortgage contract. Sadly, many home owners simply aren’t aware of such tax benefits.
Mortgage interest remains the largest tax deduction available to home owners. If the property was purchased before December 15th, 2017, owners can deduct interest payments up to $1 million in collective mortgage debt if married and filing jointly. This can be applied to primary or secondary homes. The limit is $500,000 for those filing single or married and filing separately.
For those homes purchased after December 15th, 2017, new tax laws limit deductions now to $750,000 when filing married and jointly. One thing to remember when itemizing in this way is that home owners will then forego the $24,000 standard deduction for filing married/jointly and the $12,000 for individuals or those filing married/separate.
Points Paid at Closing
Any points paid to the lender during closing are tax deductible. Points are priced at a small percentage of the total loan and are used to lower the interest rate on the mortgage. The lender can require that so many of these be paid at closing and can, therefore, be deducted.
Property Mortgage Insurance (PMI)
PMI is another potential tax deduction. It’s rare for a buyer to have the ability to pay for the home in full. It’s also rare for buyers to have 20% towards a down payment. Mortgages are available with down payments less than 20%, but lenders will then charge PMI.
Real estate taxes that are either paid through an escrow account or paid directly from the owner can be tax deductible.
Whenever someone buys a property, they become the manager as well. They should not only have a good understanding of the day-to-day aspects, but of all the financial and tax advantages of home ownership as well.