What owning a home can mean for your taxes.
Taxes. It’s usually a dreaded word that fills everyone with trepidation around April 15. But did you know home ownership is actually one thing you can do to lighten this burden? Tax benefits of home ownership are almost too good to be true. The Internal Revenue Service will look down on you favorably! REALTOR.com shares the best tax benefits.
Your tax breaks come full circle in the lifecycle of home ownership, and it all begins at the purchase.
The IRS says you can deduct interest in the year that it is paid, and that is usually part of each monthly loan payment. In addition, if the day you purchase is on any day other than the first of the month, you will likely pay a charge for “daily interest” between the day of closing and the end of the month. Look on line 901 of your HUD settlement statement.
The IRS also says that, in most cases, loan discount points and origination fees are tax deductible to the buyer, regardless of who pays them. Look at lines 801 and 802 of your settlement statement and see if you hit the jackpot. This is a particularly unusual deduction because you get the benefit even if the seller paid your closing costs. And because origination fees of 1 percent and more are common, this can amount to a lot of cash.
If it’s time to sell your home and move on to greener pastures, you have some tax benefits heading your way. If you have owned and occupied your principal residence for at least two of the past five years, you can earn up to $500,000 on the sale of that house and pay no federal income tax whatsoever. That’s assuming you are married – singles get up to $250,000 tax free, REALTOR Lynn Leegard shared. And here comes the kicker: You can do this as often as every two years for the rest of your life. The one restriction is that you MUST own and occupy the house as your principal residence, so don’t try this on a rental property by pretending you live there when you don’t. Moral of the story is to not let the housing market dictate your decision to purchase your dream home. A tax benefit or two are waiting to help you out with this life-changing decision!
The Minnesota Association of REALTORS® is the largest professional trade association in the state with more than 17,000 members who are active in all aspects of the real estate industry.