While there is a lot of pride involved in being a homeowner, there are also some added financial bonuses. Owning your home allows you to make multiple tax deductions, depending on your situation. Some are one-time deductions, while others are ongoing ones. Now you can look at being a homeowner as both an emotional and financial investment. Below are five tax benefits that you may be able to take advantage of as a homeowner:
- Mortgage Interest
Generally, you can take a deduction for the entire interest portion of your mortgage payment on your taxes. A typical 15- or 30-year fixed rate mortgage is mostly interest for about the first half of the mortgage term anyway, so you are truly maximizing your tax deduction during those years.
- Property Taxes
Once a year when your tax bill shows up in the mail, it may cause you to cringe. The good news is that you can deduct your property taxes on your federal tax returns. This is an annual deduction for each year that you live in the home.
- Mortgage Fee Deductions
Each time you get a mortgage to purchase or refinance a home there are fees involved. While some of these are sunk costs, others are deductible costs. You can typically deduct on the tax return mortgage fees, such as:
* Prepaid interest
* Origination fees
* Loan discount fees
- Private Mortgage Insurance (PMI)
Some lenders will allow borrowers to put less than a 20 percent down payment on a home purchase. However, when a lender finances more than 80 percent of the purchase price of the home, it typically requires private mortgage insurance, also known as PMI. Private mortgage insurance usually remains part of your home loan payment until you pay down the mortgage so that it is only 80 percent of the value of the home. While PMI is not typically expensive, it is also a payment that is tax deductible.
- Selling Costs
When you sell your home, you also have the right to deduct some of the costs. Some of the selling costs you can typically deduct include:
- Real estate agent commissions
- Title insurance
- Legal fees
- Advertising
- Administrative costs
- Inspection fees
- Repair and redecorating costs 90 days leading up to the sale
In addition to the tax benefits above when you sell the house you may be able to exclude the Profit from sale of your Home.
$250,000 Exclusion on the Sale of a Your Main Home
You can exclude up to $250,000 ($500,000 for a married couple) in profit from the sale of your primary residence as long as you owned and lived in the house for a minimum of two years. You need to have lived in the house for at least 2 years in that 5-year period prior to the sale of the house. The two years do not need to be consecutive. You can use this 2-out-of-5 year rule to exclude your profits each time you sell or exchange your primary residence. You can generally claim the exclusion only once every two years.