Real Estate: Tax Benefits Of Home Ownership

Buying a home can result in a big tax break every year

, among other benefits.

One of the largest investments that you can ever make will be to buy a home. The tax advantages make it one of the smartest decisions one can ever make, partially due to encouragement from the government with the numerous tax breaks that are granted. Often these tax breaks make it a lot easier to own and buy a home. You will often have more money when you sell the home. Taxes can be incredibly complicating and depend on a great majority of factors including income so if you have any concerns or questions discuss them with a financial advisor or an accountant if you have one.

Deducting mortgage interest

The largest tax break for owning a home comes from any interest that you will pay on it which is capped at $1 million. Any type of home qualifies for this tax benefit for the homeowner which means that you don't have to live there as your primary residence as long as you live there for a short time period each year. These time requirements are either 10% of the length of time it is rented out or 14 days during the year which is a mere 2 weeks.

The interest can be deducted up to $100,000 on any debts that may list your home as collateral. An example of this is a home equity loan. A limit may be placed on this if any of the funds that you borrow will cause the debt owed to rise higher than your home is listed on the market for. You may find yourself in these circumstances if you happen to be granted a loan which is higher than your home's value.

The points that you pay in closing in order to reduce the interest rate on your loan are also able to be deducted. These points are able to be deducted completely during the first year. Circumstances change if you take out a home equity loan, a loan which has security in a second home, or refinance. Points then have to be factored during the duration of the entire loan. Exceptions are made if a portion of the refinanced mortgage is used to improve the house.

Tax-free profits

Another perk to owning a home is that you are not subjected to taxes on any income that you get while selling your home. $250,000 in profit is excluded from taxes for single individuals and $500,000 for couples that file together. This also includes any land which is directly adjacent to your home.

Of course, there are always rules and regulations. Your must have your home as your primary residence and lived there for a minimum of 2 of the 5 previous years. This exemption cannot be claimed every year but every 2 years. A partial exemption is possible if you have to sell for extenuating circumstances such as your health or a job change.

Don't forget property taxes

Property taxes are also income tax deductible for both your primary home and any others which are in your possession. Escrow funds though are not tax deductible.

Write off your moving costs

You have the possibility to write off moving costs for your new home as long as it is 50 miles or more closer to your place of employment than your former home. You have to work for at least 39 weeks full time in the area of your employment for the next year. Being self-employed also allows your moving expenses to be deductible but you have to work full-time for 78 weeks during the course of the next 2 years.

As always, consult an accountant or financial adviser if you have any questions or concerns about laws pertaining to your situation.

by: Lori English

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