Owning a home is a large and beneficial investment. Not only are you building equity in a home and making memories there, but you also receive tax benefits of owning a home. These tax benefits of owning a home means you pay less when it comes to filing your federal income taxes.
While some people feel that it is more expensive to own a home than to rent, these tax benefits of owning a home may change their minds.
The interest that you pay on your mortgage every month can be written off when it comes to filing your taxes. Married couples can write off interest on a loan that is up to $750,000. Depending on your mortgage’s interest rate, this is a great tax benefit of owning a home.
The previous tax law allows you to write off interest on a loan up to $1 million if the mortgage was taken out before December 15, 2017.
Private Mortgage Insurance
Homeowners who take out a mortgage must pay private mortgage insurance (PMI) if they pay a down payment of less than 20%. This insures the mortgage lender in case you default. Typically, PMI costs between 0.3-1.5% of the home’s total value.
While you may feel this extra monthly payment is useless, it is one of the tax benefits of owning a home. When it comes to filing taxes, you can deduct what you have paid for PMI.
One reason some renters do not want to buy a home is because they will have to pay property taxes. However, what you may not know is that you can use the property taxes you pay as a deductible when it comes to filing your taxes.
The new tax bill no longer lets taxpayers deduct property taxes separately. Instead, it is combined with state and local taxes. Married couples who jointly file their taxes can deduct up to $10,000.
Home Equity Line of Credit Interest
A home equity line of credit (HELOC) is a loan that you can take out against your home. It is similar, but different, to taking out a second mortgage. With the new tax bill, the interest you pay on a HELOC is deductible from taxes only if you use the loan to buy property, improve property, or build property.
As an incentive to use green energy and energy-efficient appliances, the government offers a tax deductible when you install energy-efficient upgrades. This includes solar panels, solar water heaters, wind turbines, fuel cells, and geothermal heat pumps.
The amount you can deduct on your taxes depends on when the upgrades were installed. Upgrades installed between January 1, 2017 and December 31, 2019 can receive a 30% deductible of installation costs. Between January 1, 2020 and December 31, 2020 it decreases to 26%. Then between January 1, 2021 and December 31, 2021, it goes down to 22% of the cost.
Are You Ready to Buy a Home?
Now that you’ve learned about some of the tax benefits of owning a home, are you ready to take the leap and invest in your own home? While the costs of owning a home can be overwhelming, it’s comforting to know that your mortgage interest, PMI, property taxes, interest from a HELOC, and energy-efficient upgrades can be deducted from your annual income tax.
About Agent Lady: Cherise Wynne is a leading real estate agent in Philadelphia, helping home buyers and sellers navigate the City of Brotherly Love, with a special focus on first time home buyers. To chat about getting started with your first time home buying experience, click here.