If you’ve already done your taxes this year, good for you! Hopefully you’re looking forward to a nice refund check. If you haven’t filed your taxes, one reason may be that you expect to owe money and want to put it off as long as possible.
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Did you know buying a home can have a positive impact on your tax return? If you’re sick of writing that check to Uncle Sam year after year, consider this another reason to buy your own home. Home owner tax breaks are available to any home owner, whether you own a single family home, condo, co-op or townhouse. Check out these ways in which owning a home can save you money come tax time.
If you bought a home recently, you may have a pleasant surprise at tax time.
Mortgage Interest
The amount of interest you pay on your mortgage is tax-deductible, on mortgages up to $1 million, making this a great savings benefit for almost every home buyer. Mortgages are structured so that you pay more in interest the first few years of your loan, and more in principle towards the end. This means you might get a bigger tax break in your first several years of home ownership. Also, the mortgage interest deduction applied to second homes as well!
Points
If you paid “points” to get a better rate on your home loan, you can deduct that cost in certain circumstances. You must take the deduction in the year you purchase the home in most cases, but it you refinance your mortgage, you can only deduct the amount you pay towards the points each year. Check your loan to make sure you are deducting points correctly.
Real Estate Taxes
Most people escrow their property taxes. This means a portion of your mortgage payment is held in an account from which your taxes are paid once or twice a year. This amount should be fully deductible for as long as you own your home, so you keep this deduction even when your mortgage is paid off.
PMI
If you buy a house with less than 20% down, you usually will need to pay private mortgage insurance, or PMI. PMI is an extra fee for riskier loans, which mortgages of over 80% of the home’s value are considered. Starting in 2007, PMI s deductible, as long as you are under certain income limits.
Home Energy Credits
If you make home improvements with certain conditions that count as energy-saving improvements, there’s a special tax break for you! You will be able to claim up to an additional $500 on your taxes. Energy-efficient skylights, doors and windows, insulation, roofs, air conditioners, and furnaces, among other things, could qualify. There’s also a separate credit for high-level energy efficient products, like solar-powered generators or water heaters, which is equal to 30% of the cost of that improvement, with no limit on the dollar amount you can claim.
The amount of things you can claim as tax breaks related to your home can often turn you from a standard deduction-taker into a tax return itemizer. That means that instead of taking the standard deduction (between $6300 and $12600 for 2015), you can itemize your deductions – adding up to more than the standard deduction amount and saving more on taxes. Home ownership doesn’t just save you money on taxes, either – it builds wealth by creating equity in your home!
If you have any questions about finding a unique, historic home in Philadelphia, please contact me. And remember: friends don’t let friends buy or sell homes without Agent Lady!
About Agent Lady: Cherise Wynne is a leading real estate agent in Philadelphia, helping home buyers and sellers navigate the City of Brotherly Love, with a special focus on first time home buyers. To chat about getting started with your first time home buying experience, click here.
