Buying
a home is a one of the biggest decisions you will make in
life. It should be a well thought out decision since it will
also be one of the most expensive purchases you will ever
make. The tax advantages will lessen the cost of buying and
owning a home.
If you plan your home purchase well, in the long term you
will usually end up with a lot more money in your pocket
at the end of several years of ownership compared to renting
a home. To start the tax advantages alone will make your
home buying efforts worth it long term. To receive tax deductions
for buying a home you must file a 1040 tax form and itemize
your deductions on Schedule A of form 1040.
The following are tax deductions you can take after buying
your home:
REAL ESTATE TAXES
You can deduct the annual taxes of your home.
You can deduct annual state and local taxes on your home
based on your homes assessed value. You can also deduct real
estate taxes included at closing when you buy your home.
The real estate taxes paid at closing will include only your
prorated portion for the first year you are in the home,
the seller deducts the portion included until they were in
the home.
HOME MORTGAGE INTEREST
This is the biggie. Most people take out a mortage to buy
a home. For the first couple of years in your home the
mortgage payment is mostly interest(unless you choose to
voluntarily pay more to your principle). Your mortgage
interest is fully deductible. Your mortgage interest deduction
will be limited if your home is worth more than $1 million
dollars($500,000 if single), or if you took out the mortgage
for reasons other than to buy, build, or improve your home.
POINTS PAID
Points which are also know as origination fees, maximum loan
charges, loan discount, or discount fees are generally
deductible. There are some exceptions which your tax person
will know, but for most homeowners, especially first time
homeowners these charges will be deductible.
SAVE ON CAPITAL GAINS TAXES WHEN YOU SALE
According to the law, married home owners do not have to
pay taxes on up to $500,000 in capital gains realized on
the sale of their homes. The $500,000 provision applies
to married home owners filing joint returns and is restricted
to homes sold on or after May 7, 1997. To qualify, the
home would have to have been used as a principal residence
for at least two of the previous five years. Taxpayers
who file individual returns may claim up to $250,000.
Lois Center-Shabazz is the founder of MsFinancialSavvy.com
and author of the 3-time award-winning personal finance book,
Let's Get Financial Savvy! ISBN #0971979502.
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