Understanding Tax Benefit Of Homeownership
The tax benefit of homeownership is numerous. In fact, understanding about the tax benefits of owning a home allows you to plan on what you need to do when you file your taxes And just like any other tax benefits, they change from year to the other. It is therefore important to know the tax benefits of owning a home so that you can file your taxes properly. And since the year is almost over, this article is timely for the next year. If you sell your house fast to a cash buyer, you may want to read this.
Tax Benefit Of Homeownership #1: Mortgage Interest
This year, you have the benefit of being able to deduct your mortgage interest of up to $1 million and the most recent your home loan is, the greater tax savings you get. When you make the payment, the biggest portion of the amortized mortgage payment is the interest. For instance, a couple who bought a home with a $300,000 mortgage (for 30 years at 4% interest rate) and belonging to the 28% tax bracket will need to pay $11,904 in the mortgage interest during the first few years after buying the house. Savings can also be expected if the homeowner adds other itemized federal deductions. However, the new tax bill made some changes and the cap was changed from $1 million to $750,000 for the combined total value of the homes.
#2: Deductible Property Taxes
Another tax benefit of homeownership is that you can deduct from your property taxes. It is important to take note that the average property tax is $2,127 and if you have a mortgage, your taxes can build into your monthly payment. In the coming year, the property tax will no longer be considered as a separate deduction. This means that the taxpayer can take one deduction that already including their property tax, local sales taxes, and income taxes. This deduction can go as high as $10,000 for people who are married and filed for joint taxes.
#3: Private Mortgage Insurance
When you pay the 20% down payment to acquire your home, you are more likely paying for a private mortgage insurance (PMI). The PMI costs between 0.3% and 1.15% of your total home loan. For the current year, this deduction has been made available to help people make more savings. For instance, if your annual salary is $100,000 and you paid 5% down payment on a house that has a value of $200,000, you will need to pay $1,500 on your PMI premiums so you can cut your taxable income by as much as $1,500. However, it is important to take note that this deduction is only for those who itemize.
#4: Energy-Efficient Upgrades
If you are going to renovate your house, renovate it in such a way that you will earn incentives for it. For instance, the Residential Energy Efficient Property Credit is a type of tax incentive given to individuals who install alternative upgrades to make their homes energy efficient. There are many tax credits that are available for homeowners including the credit for solar water heating equipment and solar electricity. The percentage of the tax credit differs based on the date when the equipment is installed. For those that are installed between January 1, 2017, and December 31, 2019, only 30% of the expenses incurred are allowed for credit. The credit also drops to 26% when the installation was made between Jan 1 and December 2020 and it continues to drop further. So, if you have time, try to install these green fixtures early on.
#5: Installing A Home Office
Having a home office is also another tax benefit of homeownership. You can take $5 for every square foot deduction in your office to a maximum of 300 square feet. This means that you can save up to $1,500 on your taxes if you have a home office. However, it is important to take note that there are rules that you need to follow in order to be eligible for home office tax deductions. This type of deduction allows you to write part of your home expenses on your tax return, but you have to separate the cost that is associated with your home office from your personal use. IN order to claim the deduction, you need a place designated for your business and used exclusively for work. While this tax deduction is applicable to all freelancers and self-employed, those who are employed by companies but have to work from home on some occasions are not eligible to get this deduction.
#6: Home Improvements To Support People With Disabilities
Improvements added to your home that can benefit people with disabilities are tax deductible. These include wheelchair ramps, grab bars in the bathroom, wider doorways, and stair lifts. However, to get this type of tax deduction, you need to get a letter from your doctor to prove that these home improvements are necessary for the members of your family. Moreover, the home improvements should also not exceed 7.5% of your gross income thus if your monthly income is $60,000, then you only need to spend $4,500 on such home renovation.
#7: Interest On Home Equity Line Of Credit
The interest that you pay for a home equity line of credit (HELOC) is deductible. This type of loan is used not only to make a home improvement, but it is also used to fund for college education and wedding. However, how much you save depends on how much you borrow from this credit. For instance, if you borrow $20,000 on a HELOC with a 4% interest, you are eligible for $800 deduction. However, the new tax law indicates that the deduction is only eligible if used only to buy, build, or renovate a property and nothing else. The tax advantages of owning a home are numerous, and this is the reason why many people are motivated to buy their very own home. If you are planning on buying your dream house, then let Sell Quick California teach you how. There are many ways that you can fund for your dream house so that you do not only experience the freedom to live in a home but also its many tax benefits.