From building equity to growing roots in a community, home ownership has some significant benefits — including some hefty tax savings.
Uncle Sam offers homeowners several tax advantages to help ease the financial burden of your costly investment. If you’re thinking of moving into a new home or just settling into your dream home, homeownership not only provides a place to call your own. It also can offer some valuable savings along the way.
Discount points. Considering a home purchase? If you plan to stay in the home for at least 10 years, buying mortgage points — or discount points — may be worth your while.
Each mortgage point represents one percent of your underlying loan amount. While they’re an additional upfront cost at closing, they’re also a way to negotiate a lower interest rate. Plus, they’re deductible.
Mortgage interest deduction. As a homeowner, you can deduct the interest you pay on your mortgage loan from your taxable income. This deduction can result in substantial savings, especially during the early years of your mortgage when the interest portion of your monthly payment is typically higher.
For example, if you purchased a home with a mortgage loan of $300,000 and an interest rate of 4%, you would pay approximately $12,000 in interest during the first year. By deducting this amount, you could potentially lower your tax liability by thousands of dollars.
Property tax deduction. Property taxes are calculated by the local government and are typically based on the assessed value of your home. The good news is that you can deduct the amount you pay in property taxes from your taxable income, reducing your overall tax liability.
This deduction is particularly beneficial for homeowners who live in areas with high property tax rates.
Home office deduction. If you use a portion of your home exclusively for business purposes, you may be eligible for the home office deduction. This allows you to deduct all direct expenses and part of your indirect expenses involved in working from home, including utilities, insurance and repairs.
Keep in mind, this deduction is calculated based on the percentage of your home that is used for business purposes. So if your home office occupies 10% of your total square footage, you can deduct 10% of your eligible expenses.
Home equity loan interest. A home equity loan allows you to access the equity you’ve built in your home and borrow the funds as needed. You can typically borrow 80-85% of your total home equity.
Similar to regular mortgage interest, you can deduct the interest you’ve paid — as long as the funds were spent on making home improvements.
Medically necessary home improvements. And speaking of home improvements, medically necessary home improvements that help you, your spouse or dependents live safely in the home may be deductible. These include widening doorways, lowering cabinets, adding railings and more.
Time to take advantage of homeownership tax benefits
There are few times in life you can get money out of your house — rather than pouring cash into it. Tax season is a key opportunity! At Magone & Company, we’ll help you get the most tax savings as a homeowner. For tax planning guidance, give us a call today at (973) 301-2300.
This document is for informational purposes only and should not be considered tax or financial advice. Be sure to consult with a knowledgeable financial or legal advisor for guidance that is specific to your tax situation.