When it comes to your living space, a home certainly comes with a lot of joy.
You may have a yard to play outside in. You’ve got another room if you need some space. You can watch the TV show you want somewhere else. You can design your kitchen however you wish.
Add to the list of perks: tax benefits.
When it comes to seeking out ways to lower the amount of tax you may look to your house and ownership status. Owning, instead of renting, your home provides impressive tax benefits that you won’t want to miss out on if you’re eligible for them.
Your finances can be strongly intertwined in your status of owning your home. While your tax situation does become a little more complicated once you achieve that ownership, the benefits you receive on your taxes may be significantly worth it.
Keep in mind that tax laws can change. Always be sure to find the most updated tax code when navigating your opportunities for savings. It’s helpful to maintain accurate records of your interest payments and other expenses involved in owning your own home.
Tax Benefits of Owning a Home
Here we share some ways on how you can save money on your taxes with the benefits found in owning your own home.
The IRS Encourages Home Ownership
First, it’s important to recognize the opportunities the Internal Revenue Service provides you if you’re a homeowner. Because homeownership can be a great thing for the economy, the IRS has homeownership deductions in place in order to encourage potential buyers to make the move.
The Power in Itemizing Deductions
If you’ve done your own taxes in the past or know a little bit of tax code, you’ll know that you can include applicable deductions that lower your overall taxable income amount. This is important as you pay a percentage on a smaller amount.
With homeownership, you may be available for different types of deductions that help to lower your taxable income. There are a few types of deductions you can look into:
If you have a mortgage, you can deduct that interest paid from your income. You’ll receive a Form 1098 to see how much interest you paid that you can deduct. Be sure you also include any interest paid as part of your closing process as well.
Yet remember that paying off your mortgage is a wonderful accomplishment. Don’t delay paying off your home just for the tax benefit.
What you pay in your property tax can also be deducted from your overall taxable income. Keep track of this amount so you can apply it when you do your taxes. Be sure you follow along with how your taxes are paid – whether through your lender or municipality – so you can accurately note it as a deduction on your taxes.
Private Mortgage Insurance (PMI)
You may also be able to deduct the payments made on your private mortgage insurance. You must meet certain income requirements in order to be eligible for a deduction on your taxes.
However, if you’re able to hit that 20% down payment threshold required by your lender to not have to pay PMI, go that route first.
House for Sale
If you sold your home, you may not need to pay taxes on the profit you made on the house. While there are certain requirements to make, it’s worth exploring to save money in tax deductions.
Seek Out Available Credits
In addition to deductions, you can also save money with tax benefits in owning a home in the form of credits. Credits are money that’s taken off from your overall taxes. By making certain home improvements, you may be eligible for additional credits to apply to your taxes. These improvements include things like making your home more energy-efficient and other savings opportunities. These home improvements to use less energy help you with your taxes but also helps your overall utility costs of running and maintaining your home.
Let Your Home Work For You
Your home is a special place, especially when you’re the owner of it. Explore which tax benefits you may be eligible for by doing your own research or meeting with your financial advisor to ensure you make the right money moves. A lot of your savings opportunities comes down to which tax bracket your in and what your finances are like.
Get the most out of owning your own home by exploring the relevant opportunities you have to lower the amount of taxes you pay. In doing so, you’ll save money to be able to afford more of those home improvements you love doing.