Ok, maybe there is no need to get excited,
but there are significant tax benefits for people who buy a new home. Let’s look at six ways these buyers can save on taxes and put money back in their pockets.
Deduct Mortgage Interest
The mortgage interest deduction can be a huge tax break to homeowners. This can be especially true during the early years of your mortgage when the majority of what you pay each month is applied to interest as opposed to your loan’s principal.
Deduct property tax
Who likes paying property taxes? At least there’s an upside: the ability to take a larger deduction on your taxes. (One thing you’ll need to remember about this deduction is that you must claim it the year you make your payments.)
Some people pay points on their mortgage in exchange for a reduced interest rate. Points are essentially an up-front fee you give your lender when you sign your mortgage. The good thing about points is that they can work as a tax deduction, if not right away then over time. If the points you pay are in line with the industry standard, and the purpose of your mortgage is to purchase your primary home, then you’re allowed to take a full points deduction right away.
Otherwise, you can still take the deduction, but you’ll need to spread it out over the life of your home loan.
Deduct private mortgage Insurance
Buyers not putting 20% down on their home, usually have to pay PMI or private mortgage insurance. PMI usually ends up equaling 0.5% to 1% of your home loan’s value, so if you take out a $300,000 mortgage, you can expect to pay anywhere from $1,500 to $3,000 in PMI. But while that extra expense is far from ideal, it could serve as a tax deduction if your income meets the qualifications. You can check with your tax professional to see if you qualify.
Deduct a home office
If you work from home, the home office deduction could save you some money on your taxes. The IRS permits you to write off a portion of the expenses (such as electricity, water, and internet service) that enable you to conduct business from home. Your home office needs to be a dedicated space reserved for business use only, to qualify.
Allows you to itemize
To take advantage of these deductions, you’ll need to itemize on your taxes. But, if your tax-deductible costs of homeownership are high enough, you’ll be able to forego the standard deduction in favor of being able to itemize all your deductions.
We hope this helped find some new tax benefits and maybe even provide a reason to look forward to tax season 🙂 Thinking ahead about next years taxes and looking to build a new home this year? Macatawa Homes is here to help. Shoot us an email or schedule an appointment so we can sit down and get your dream home started.
Did we miss something or do you have a suggestion about something you think is more important? If so, please leave them in the comment section below, we would love to hear them or feel free to start a conversation over on Facebook.