You may have heard that owning a home can be more affordable than renting, and can help you build wealth over time. But did you know that owning a home can actually help lower your tax bill, ultimately making home ownership more affordable? With Tax Day looming, read on to learn how owning a home could make the next tax season a bit brighter.
Standard Mortgage Deduction
When you hear about tax deductions for mortgages, the standard mortgage deduction is usually the one being referred to. A standard mortgage deduction allows those who own their homes to deduct the mortgage interest of their loan from their taxable income. For most homeowners, especially those who have recently purchased a home, interest is the largest portion of your mortgage payment, so this deduction amounts to quite a large tax deduction. You can enjoy this tax benefit for the life of your mortgage loan.
Closing Cost Deduction
You may qualify for a tax deduction for the year of your home purchase based on your home’s closing costs! During your first year of home ownership, you are able to claim the origination fees or points on your loan (regardless of whether you or the seller pays them). This can mean considerable tax savings that can benefit you down the road.
Property Tax Deduction
Did you know that the real estate taxes that you pay on your property are fully tax-deductible? When you file your taxes each year after a home purchase, be sure to deduct your property taxes too!
Capital Gains Tax Exclusion
If you sell your primary residence after living in it for more than two years, you are eligible to keep the profits of the sale up to $250,000 for single people and up to $500,000 for married couples without having to pay capital gains taxes. This exclusion will make it easier for you to use the appreciated value of your home to move up to a new house in the future.
When it comes to tax time, owning your home can be a great way to maximize your refund. But what if you don’t own a home yet? Check out next week’s blog to learn all about how you can use your tax refund to make your first home purchase more affordable!