Buying a home is often the largest investment you will ever make. This process generally involves a loan with complicated paperwork and possibly other obstacles and other hoops you'll have to jump through along the way. Is all this effort really worth it? Absolutely!! There are many reasons you may want to purchase a home but there are also a few tax benefits you may not be aware of as well. These tax advantages, can help reduce your costs and leave you with more money when you sell. Here are a few of those benefits:
1. Mortgage Interest - This interest is tax deductable on a maximum of $1 million in mortgage debt. You may also deduct the interest on other debt up to $100,000 which uses your home as security such as a home equity loan.
2. Points - When you apply for a loan, your mortgage lender will charge you a variety of fees. You may choose to pay "points" or a "loan origination fee". These fees are calculated at 1% of the loan principal and buyers typically pay one to three points. The cost of points can be fully deducted when purchasing a home.
3. Property Taxes - Real estate taxes may also be deducted from your income. This applies to your principal home and any second home you may own.
4. Capital Gain/Profit - Usually profits from the sale of a home are taxed and are known as a "capital gain". Thanks to the Taxpayer Relief Act of 1997, married homeowners are allowed to exclude up to $500,000 in profit from the sale of their principle residence and single homeowners can exclude $250,000. You can file for this capital gain exclusion every two years, as long as the property you sold is your principle residence and has been for the past two of the past five years. Partial exemptions can be made if you owned your home for one year.
For more information on the tax benefits of owning a home you can check out IRS Publication 936 which is entitled "Home Mortgage Interest Deduction". This publication can be found at IRS.gov or ask the person who does your taxes if they happen to have a copy.
Deciding to purchase a home can be a difficult decision but the benefits mentioned above were created as incentives for us all to get out there and realize the American Dream of home ownership.
If you are considering a home purchase in the Seacoast of New Hampshire or in Southern Maine in the near future and want to get even more information about buying a home, check out SeacoastHomesForYou.com and we'd be happy to provide you all of the information you might need to realize the dream of homeownership!
RE/MAX Coast to Coast
1-888-349-5678 x 3818