Planning to buy a house? It's one of the smartest decisions you can make—and not just because you'll be creating a wonderful home in the location of your choice. It's because homeownership has many tax benefits as well.
Homeowners may receive benefits from Uncle Sam when they purchase or sell a home, and tax advantages may even accrue during the period you own a home. That's why many people consider homeownership to be the ultimate tax shelter.
Here are just three of the possible tax-saving opportunities for homeowners*:
Mortgage interest deductions. Interest paid on a mortgage on a first—or even second—home is deductible for those who itemize. That reduces the cost of ownership. For example, someone who pays $10,000 in mortgage interest and who falls in the 25% tax bracket could save up to $2,500 in taxes each year. Generally, all the interest paid on a mortgage is deductible, unless the loan is more than $1 million.
Real estate tax deductions. Property taxes based on the assessed value of your home and paid to a state or local government can be deducted—whether you pay directly or through an escrow account. Your bank will provide you with a statement of the actual amount it paid. Also, remember to look at your settlement statement if you recently purchased a home. Any prepaid taxes for which you reimbursed the seller are deductible as well.
Capital gain exclusion for the sale of a home. Under current law, if you are selling your principal residence, you can exclude from taxation any profits up to $500,000 for married taxpayers or $250,000 for single taxpayers.
Call our CENTURY 21 office today so we can get you on the path to the home of your dreams.
* Consult a tax professional for details.