One of the most important things for a homeowner to know is what real estate tax deductions you’re entitled to. Buying a house is a very complicated process, and the more you understand about the procedure before you make the purchase, the better off you will be once you start having to make payments on it. By having a thorough understanding of taxes and tax laws, you could find some deductible real estate taxes and maximize your savings as a homeowner.
For starters, the interest on your mortgage is tax deductible. When you make your monthly payments, you are also charged a certain rate of interest depending on the type of mortgage you have. Aside from basic mortgages, interest rates through refinancing and home equity lines of credit are also tax deductible. Even if you are no longer on your first mortgage, you are still able to take advantage of other interest rates for your tax purposes. The exception to this is if you have a mortgage for more than a million dollars, or if your equity line is over $100,000. Your original mortgage might limit the tax write-off, so it’s important to be aware of this. Depending on what your original mortgage is, you tax rate may vary. Your lender will be able to give you details on exactly what your mortgage entitles you to.
A vacation home can also be eligible for tax breaks as well. You mortgage interest on your vacation home can be completely tax-deductible, even if you use the property as a rental for some of the time. As long as you use the property for a certain amount of time every year, your mortgage can be tax-free.
Paying for your mortgage with points can also help you save some tax money. If your loan meets certain criteria, and was purchased with points, the IRS will allow you to write off the expenses.
There are also ways to save on taxes through real estate tax deductions like selling your house as well as buying it. When you sell your house, up to $250,000 of the profit you can make can be tax-free as long as you have lived in the house for two out of the five years prior to the property’s sale, and have owned the property for two years.
Property taxes are another example of deductible real estate taxes and can lead to potential savings for the homeowner. When the title of your home switches from the bank to you, the taxes that you paid on the property for that portion of the year are deductible. This discount is only available for the first year of your home ownership.
If you are wondering about home-related items and expenses that are not tax-deductible, they range from necessities such as insurance policies, to more cosmetic items such as improvements and additions. Closing costs on your home, as well as depreciation of the property are also both non-deductible. Finally, even though home repairs are necessary for almost every homeowner to make their space more livable, they too have to be paid for out of pocket. Think of these as a way to add equity for the future.
This is just a basic list of deductible real estate taxes that you as a homeowner are entitled to. Your specific lender will be able to give you much more detailed information in regards to your specific home and mortgage and they could find you some real estate tax deductions you may never have thought of.