The favorable treatment the IRS gives homeowners should be a major factor in making your decision to buy a home. There are numerous tax benefits to home ownership including tax deductions on interest, deductions on real estate taxes, and the capital gain exclusion for sellers.
Your Purchase and Deductions on Interest
Homeowners who itemize their federal income tax deductions can reduce their taxable income by the annual amount of mortgage interest paid on a first and second home for up to $1 million. Most of your monthly payment will be interest in the first few years of your loan, so this can be a significant amount of money. Click here for more information directly from the IRS on mortgage interest deduction.
Also, in most cases, loan discount points and origination fees are tax deductible to the buyer, even if the seller pays for your closing costs. Check lines 801 and 802 of your settlement statement to see how this affects you.
Deductions on real estate taxes
Itemizing homeowners may also deduct state and local real estate taxes paid on an owner-occupied home.
Note — Many counties also impose property taxes for local improvements to property, and these taxes cannot be deducted. Local property taxes are deductible only if they are for maintenance or repair.
Your sale and the capital gain exclusion
When selling your home, as long as you have occupied it as a principal residence for at least two of the past five years, you can also be excluded from capital gains taxation on the proceeds of the sale.
- There is a limit on this exclusion: $500,000 of gain for married homeowners and $250,000 for single homeowners.
- This exclusion is available even if you’ve used it before. In fact, you can do this as often as two years for the rest of your life.
Mortgage Insurance may be deductible
In general, if you itemize deductions, you may deduct premiums paid for mortgage insurance provided by the Department of Veterans Affairs (VA), the Federal Housing Administration (FHA), the Rural Housing Service (Rural Housing), or private mortgage insurers in connection with a mortgage for the purchase of your main home. The amount you may deduct is limited if your adjusted gross income is more than $100,000 ($50,000 if married filing separately). No deduction is allowed if your adjusted gross income is more than $109,000 ($54,500 if married filing separately).
For more information please go http://www.realstorynj.com/buyers/homeownership-benefits