This calculator will help you to estimate the tax benefits of buying a home versus renting.
Tax Benefits Could Be Yours
Any homeowner knows just how rare it is to find a hole in your finances where owning a home, paying a mortgage, and being a loan owner actually saves you money. But when it comes to paying off your taxes, many homeowners will be able to save quite a chunk of cash, much to their delight. This savings is due to the generous ability that the IRS gives mortgage payers to deduct both interest and property tax payments from their gross income.
What this Means for Your Accountant
Whether you are the tax form specialist for your family, or you have a trusted accountant who completes your forms each calendar year, you will want to be aware of the deductions you are eligible for simply by being a homeowner. These reductions in your adjusted gross income can make a significant difference in which income bracket you fall into and exactly how much you owe the state and federal government in estimated or currently due taxes.
Your property value, current interest rate on your mortgage, loan term and state and federal tax rates all play a part in determining how much you will be able to deduct on your annual 1040 form. The number of percentage points you have at loan closing, as well as any other associated contract costs, will also be taken into account. Both your annual interest rate on your mortgage and the percentage of property taxes that are included in your monthly bill will help you to be able to realize savings on your tax bill. You must itemize these figures in order to qualify for a deduction.
The interest rate discount is also available for owners of one or two homes, multiple mortgages, and those who have lines of credit or home equity loans. Only the primary borrower – or primary borrower and related spouse – can claim the deduction. Traditional homes, condominiums, mobile homes, boats, recreational vehicles, and cooperatives are all eligible to qualify for the interest rate deduction. However, those whose mortgages total over one million dollars will have a more limited deduction amount that they may encounter when applying for the discount.
More Deductions You May be Eligible For
In addition to the standard deduction of interest and property taxes that you can make, be sure to keep an eye open for additional savings that being a homeowner can bring you. For instance, the state and federal government often creates incentives for prospective home buyers during hard economic times, such as rebates worth thousands of dollars or further possible deductions to reduce the amount of taxable income you are bringing in. Discuss these possibilities with your accountant before tax time to make sure you are maximizing your possible savings when it comes to being a home owner.
Depending on your location, the current laws and regulations, and your particular tax situation, you may be eligible for deducting certain expenses such as homeowner's association fees, emergency home repair or flood damage, or state specific costs related to your home. All of these deductions will contribute to a lower adjusted gross income which in turn will lower your taxes owed by quite a bit.