The financial benefits of home ownership are very evident to those who already have a home. But what about those who don’t or those who are still considering it? Do they know the tax benefits? So what are these benefits anyway? Are they all worth it? How does home ownership affect your taxes? Here we find out:
Your equity in your home is how much money you can sell it for minus that amount you still owe on it. Every month, a portion of what you pay for mortgage is reduced to the amount you already owe. That reduction increases your equity monthly. The way mortgages work is that the principal portion of your payment increases slightly every month year after year. It’s lowest on your first payment and highest on your last payment. Thus, as the months and years go by, your equity grows.
Mortgage Tax Deduction
The tax code allows homeowners to deduct the mortgage interest from their tax obligations. This is definitely a huge benefit for some people. This is because interest payments can be huge in the early years of owning a home. There are also known benefits in terms of closing cost deductions. The first year you buy your home, you are able to claim the origination fees on your loan in which the savings are considerable. Lastly, real estate property taxes can also be deductible for income tax purposes.
Energy Efficient Homes
Another tax benefit involves claiming a credit for energy efficient home improvements. Yes, if you upgrade your hot water heater, re-insulate your home, add new windows, or even upgrade your central air conditioning to a more energy efficient model you may be able to claim an energy credit for the improvement. This means you get a greener home which can save more money and also give you more benefits! We will talk more about energy efficient homes and taxes soon so do stick around for that!