When you buy a home you get a number of substantial tax breaks that have an immediate and long-term financial impact for you and your family.
You should always check with your tax advisor because every taxpayer’s situation is different. This way you will be able to maximize your tax benefits and make homeownership both an enjoyable and rewarding experience.
The following tax benefits are prime examples of the savings available to you:
- Mortgage Interest
All the interest you pay each year on your mortgage loan is fully deductible from your income. The only restrictions are that the mortgage must be for a first or second home, and the mortgage amount must be within established guidelines. That’s a big chunk of income tax savings immediately.
- Property Taxes
The annual property taxes that you pay on your home are also deductible. Your mortgage company will send you a year-end statement that will detail both the property taxes and interest you paid. If you pay property tax separately from your mortgage, you must keep track of the payment yourself.
- “Points” (Origination Fees)
Points, or the origination fees that a lender charges to facilitate a home loan, are fully deductible in the year they are paid. In the future, if you secure an additional home equity loan with points on your home, these charges are also deductible, subject to some limitations.
- Excluding Sales Profits
You can receive a tax exclusion for profits from the sale of your home. This program was enacted by the U.S. government to encourage both owning a home and moving up to a bigger or better home without being penalized. Today, the exclusion includes $250,000 of profit (it goes up to $500,000 if filing a joint return) and is allowed each time you sell a home and as often as every two years. This gives you a chance to gain home appreciation without paying taxes on it.