5 Important Tax Benefits of Homeownership
Mar. 18, 2013
by: Scott Schang, FindMyWayHome.com
With tax season upon us, it’s a good time to talk about the tax benefits of home ownership.
2012 brought a lot of talk of tax credits being taken away from homeowners, but as of this writing there are 5 tax breaks and exemptions that should be considered by anyone that has recently purchased, or is thinking of purchasing a new home.
Mortgage Interest is the elephant in the room and one of the biggest tax benefits of homeownership. Under current IRS rules, you are allowed to write off the interest you pay on your primary or second home loan.
Points and Discount Points paid out to secure a lower interest rate can also be tax deductible. These fees are not always fully deductible in the year that you took out the loan. Consult your CPA or accountant, or the IRS link below for guidelines and exceptions.
Property Taxes are another major deduction available to homeowners. One important thing to take note of is that money collected in an escrow account is not tax deductible, only taxes actually paid by the lender (or yourself) during the current tax year for which you are filing.
Mortgage Insurance is once again tax deductible for borrowers with an adjusted gross income of $100,000 or less. This deduction expired in 2011, and was reinstated on December 31st, 2012. The tax deductibility of mortgage insurance was extended to December 31st, 2013, and made retroactive for tax filing year 2012.
Capital Gains Exemptions may not always be included in the conversation about the benefits of homeownership because you do not realize the tax break until you sell the home. If you’ve lived in your primary residence for 2 of the last 5 prior to selling it, a married couple is eligible to a tax exemption on the first $500,000 of capital gains. Single, or married couples filing separately can claim $250,000.
Add into the mix home prices in California that have dropped significantly in the past 5 years, and record low interest rates, and you’ve got a perfect storm for homeownership.
Disclaimer: I am an informed and empowered consumer, like you. This is not tax advice, and I am not a licensed tax accountant. Please consult a tax consultant to discuss your individual eligibility.
To do more research on your own, here is a link to the IRS website –
Publication 936 (2012), Home Mortgage Interest Deduction
http://www.irs.gov/publications/p936/ar02.html#en_US_2012_publink1000229944
