Let’s break down the impact of owning a home!
Owning a home can provide you with significant tax benefits. It’s key to learn how home ownership can impact your taxes so you know which home expenses to claim on returns for maximizing your saving potential.
Let’s quickly run through the basics of how income tax deduction works. A deduction reduces your taxable income by a percentage, which depends on your tax bracket. There are standard deductions ($12,550 for individuals filing as single taxpayers, or $25,100 for married couples filing jointly) and itemized deductions. Itemized deductions involve listing eligible deductions separately. After adding up the total, it's multiplied by the tax bracket for the total deduction.
Tax Benefits of Owning a Home
There are multiple lasting tax benefits to owning a home! Let’s dive into a few of them:
Mortgage Interest Deduction - Most homeowners can deduct the interest payments they make on their mortgage from their taxable income. There, of course, could be limits on what you can deduct, depending on the size of your loan.
Real Estate Taxes - The money paid in property taxes is deductible from taxable income. If paid through a lender escrow account, the tax amount is found on your 1098 form. For directly paid taxes, use your personal records like a copy of a check as proof.
Private Mortgage Insurance (PMI) - Loans that are under 20% of your home’s value may be able to deduct your PMI payments from your taxable income. This depends on your adjusted gross income (AGI). For single people, the number is $50,000 to be eligible. For married couples, it’s $100,000. Once the maximum amount threshold has been reached, the deducted amount begins to phase out.
Home Equity Debt - If you’ve taken out a home equity loan or a home equity line of credit against your home, the interest payments can be deducted from your taxable income. Provided that the loan is used, quoting the IRS, “to buy, build, or substantially improve the taxpayer’s home that secures the loan.”
Home Office Expenses - If you use a part of your home exclusively for work purposes, you may be able to deduct related expenses too.
Homeownership can lead to many questions. Get in touch with us at TVFCU, we’d be happy to help! You can follow along with our blog where we’ll share posts like this one here and more going forward. You can give us a call at 585-343-5627 or 800-722-8224, or by reaching out via our contact form.