6 Tax Benefits Of Home Ownership

December 7, 2011

Buying a home has tax advantages that simply renting a home does not. You may have heard people say that when you rent, you're just paying someone else's mortgage and helping them earn equity. With tax season right around the corner the following are 6 itemized deductions that, as a homeowner, you can take on your taxes. This is what you're missing out on by not having your own mortgage. Home mortgage interest: When you first buy a home, the majority of your monthly payment is made up of interest. As you continue to pay your mortgage each year, slowly the balance shifts from interest, to principal payments. The interest you pay on your mortgage up to $1 million per year is deductible. Property tax: Did you know your property taxes can be deducted from your federal income taxes? Both state and local taxes are counted in this equation. Home buying expenses: Certain fees and closing costs associated with a new home purchase can be deductible. Some examples are prorated interest on a new loan, prorated property taxes, and loan origination fees. Home equity loan: If you need money, for example, to pay off high-interest credit cards, start up a business, or any other number of reasons you can think of, you can borrow up to $100,000 against the equity in your home and deduct the interest. Credit card interest, on the other hand, is not deductible. Home-sale exclusion: When selling a home for profit, as long as you live in your home for two of the previous five years before selling, you only pay taxes on profits over $250,000 if you are single. You only pay taxes on profits over $500,000 if you are a married couple filing jointly. This exclusion can be taken once every two years. Free Rental Income: Another unusual benefit of owning a home is that you can rent your home for up to 14 days during the year and pay no tax on the rental income. If you are a renter subletting your home you have to pay taxes on the income you earn. If your lease is coming up for renewal and you are still trying to decide if it's better to own verses rent in this economy here are 6 compelling reasons why you benefit as a home owner when it comes to tax time. Image source: ©PhotoXpress.com
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