Owning a home can come with many ups and downs. However, when it comes to your taxes there can be a few financial benefits.
Deducting your interest
When filing your taxes, whether jointly or alone, you will be able to deduct the interest you pay on your loan each year. This is probably the most beneficial tax deduction. You will be given a 1098 form from your lender which keeps track of how much you have paid over the year. In order for your home to qualify for the deduction your loan must be below 1 million dollars and it must be insured.
Many people hear that you can deduct points from your taxes but do not fully understand what this means. Points are given when you pay extra interest upfront on your loan for your main home. If you qualify, you can deduct these points from your taxes. However, there are many guidelines to be able to receive points so do not just assume when buying a house that you will get them.
Deducting your PMI in 2015
For this year only you will be able to deduct your private mortgage insurance from your itemized tax deductions. When you are unable to make a large down payment on your home some lenders may need you to take out a PMI in case you default on your loan.
Deducting your real estate taxes
Whether your real estate taxes are combined with your mortgage or you pay the government you can deduct these from your taxes. You will either need to keep track of this number or it can be found on your 1098 form. Don’t forget if you had to pay the previous owner taxes you can claim those on that year’s taxes as well!
Owning a home means that you will need and want to do an itemized tax return. Generally, this purchase puts you over the standard deductions, ($6,300 individual and 12,600 for a married) meaning you will have a greater chance of getting a higher refund when combined with medical expenses and donations. This means you will now be filing a 1040 instead of a 1040-EZ.
Unlike other investments that you have made that can be taxed at a higher rate, your home can make you money on it’s resale without being taxed. For individuals, your home would need to make a gain of over $250,000 before being taxed; for married couples it is $500,000. You just need to live in the home two of the last five years.
Owning a home can seem like a difficult task. However, by understanding these few tax rules you will be able to save (or receive) money on your taxes by just being a homeowner!