Homeownership Tax Breaks You May Want to Consider

The transition from being a renter to a homeowner is a big decision with many factors to consider. One of those factors being the type of tax benefits you’ll receive for making the switch. Take a few minutes to learn about the tax breaks associated with buying your own home.

Mortgage interest deduction

One of the advantages you’ll get from owning a home is the ability to deduct the interest on your home up to $1 million ($500,000 if you’re single or married filing separately). In the first few years this can be extremely advantageous since about two-thirds of your monthly mortgage payment is interest.

If you’re a renter you won’t get this tax deduction, instead your landlord will get the benefit while you pay the cost.

Discount points

When you first purchase a home you have the option to lower your interest rate by purchasing discount points.

Each point typically costs 1% of your loan amount with an average deduction of $611.

In addition you’ll be lowering your monthly mortgage payment because you now have a lower interest rate.

Itemized deductions

Homeowners also have the ability to itemize their deductions which may lead to bigger tax breaks. However, if the sum off all your itemized deductions is not higher than $12,400 for married couples or $6,200 for singles or married filing separately then you’ll be better off taking the standard deduction.

About 70% of Americans, many of them homeowners, take the standard deduction, putting them in the same boat as renters. However, it’s the fact homeowners have the option to itemize that make owning a home advantageous in comparison to renting.

Property taxes

Another large part of your loan payment consists of property taxes. As long as you own your home, these taxes will be deductible.

Renters don’t have the luxury of deducting property taxes. Instead, their landlords take the deduction while renters provide the payment.

Energy efficiency 

Another possible benefit you may receive depends on whether Congress renews the benefit for 2015. You may be able to claim up to $500 for making your home more energy efficient.

You can use this tax credit on a dollar-for-dollar basis. So if you owe $600 in taxes and have a $500 tax credit, you’ll only owe $100.

Capital gains advantage

Perhaps the biggest advantage you’ll receive as a homeowner is the ability to avoid some taxes on the profit of your home should you decide to sell.

Up to $250,000 in sales gain ($500,000 for married filing jointly) will be tax free as long as you owned the property for 2 years and lived in it for 2 of the 5 years before the sale.

Home sweet homeowner perks

Overall owning a home is viewed as more advantageous than renting, and not only for the associated tax perks.

On average a homeowner is worth four times more than a renter as the majority of a homeowner’s wealth accumulates through their home’s equity.

If you’re still on the fence about becoming a homeowner though, make sure you weigh all the facts, tax perks included.

What other benefits do you see in homeownership?