For most Americans owning a home is the American dream. What many people seem to forget is the NET cash advantage to them, after taxes. We hear so many buyers talk about their monthly payments or the cost of the home. The most common thing people forget is how much of their income they will keep after they pay their income taxes. Owning a home provides numerous tax advantages, helping you build potential equity with government tax benefits.
Russ and I are not accountants and we suggest you speak with your tax advisor before making any significant financial decisions. Below are some brief suggestions from the California Association of Realtors.
- “Mortgage interest: Homeowners are generally entitled to reduce their taxable income by the amount of mortgage interest they pay, as long as they itemize deductions on their tax returns.
- Private mortgage insurance: Homeowners who are paying PMI likely will be able to fully deduct the amount, as long as their adjusted gross income is $100,000 or less ($50,000 for married taxpayers filing separately). Borrowers with incomes above $100,000 may qualify for a partial deduction.
- Energy-efficient home improvements: If windows, doors, or skylights that meet the requirements of the federal Energy Star program were installed in 2011, homeowners can get a tax credit equal to 10 percent of the product’s costs.
- Points: The charges a borrower paid in points to get a mortgage are generally deductible if it was a first mortgage on the property. In the case of a refinance loan, all or some of the point charges might be deductible, but it gets complicated.
- Property taxes: The amount paid in property taxes is deductible as long as it is based on the assessed value of the property. If the mortgage company collects money for property taxes, the amount actually paid should be on the 1098 form lenders send out each January.
