Are you Getting All the Tax Deductions Homeowners are Entitled to?
Congratulations on your brand new home! As a new property owner, you’re one more step up the ladder of the American Dream. Now you can dive into the joys of painting, plumbing, yardwork, and of course, a lot of new tax breaks. Whether the home builders just finished your brand new home, or you’ve purchased a used home, it’s not going to be “EZ”.
You can get tax breaks for nearly every type of home. If you live in a mobile home, single-family home, or even cooperative apartment, you’re still eligible for tax breaks. You may even enjoy some tax breaks when you sell your home.
You’re going to have to change your taxes to Form 1040 and Schedule A, and itemize your expenses. If itemized taxes are best for you, check out what your brand-new home can get you.
Write Off Your Mortgage Interest
You’ll write off more taxes with this tax break than any of your others, because most of your monthly mortgage payments go straight to your interest. You can deduct all your interest, assuming your loan is less than $1 million dollars. Of course, if you’re fortunate enough to own a multimillion dollar home, there’s a cap to your deductible interest.
Your interest tax breaks don’t end with your brand-new home’s first mortgage. If you pull out extra cash through refinancing, or sign up for a home equity loan or line of credit, you’re probably going to be able to write that off too, up to $100,000.
If your brand-new home is your second home, your mortgage interest is still fully deductible. As a matter of fact, your extra property doesn’t even have to be a house. You can call a boat or RV your second home, as long as it has cooking, sleeping and bathroom facilities.
The Points on Your Brand New Home Loan Might Be Deductible Too
If you paid points to get a better rate on your brand new home, you can get a tax break too. However, be sure you know when you get to claim those tax benefits.
You can deduct your points in the same year you pay them, as long as your loan is used to purchase or build your main home. You should make sure your loan meets all the qualifications to ensure you can deduct all your points at once.
If you paid points on a refinance loan, you can be eligible for the tax break too. However, now you must deduct those points over the life of the loan. Meaning, if you paid $2,000 in points on your 30-year mortgage, you get to deduct $5.56 per month. That’s just $66.72 per year.
Selling Your Brand-New Home has Tax Incentives as Well
When you decide to sell your home for a bigger one, you don’t have to pay all the taxes on the profit you make either. It used to be that to avoid taxes on the profit of your home sale, you had to apply the money to buying your next house. However, in 1997, the law changed. As such, now up to $250,000, or $500,000 for married and filing jointly, is tax free. The only qualification is that you must have been the homeowner, and have lived in the home for 2 of the last 5 years.
Normally, if you sell before you’ve met the ownership and residency requirements, you owe tax on any profit your sale makes. However, you have some tax relief available to you if you’re selling because of a change in your health, employment, or due to unforeseen circumstances. If your sale qualifies, the tax-free gain amount becomes prorated.
This isn’t a comprehensive list of tax breaks, but these are some of the biggest ones. If you’re looking for a brand-new home, Chetty Builders has the experience you want to count on. Call (610) 444-8880 and enter extension 105, email, or contact us here.
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This post was written by Chetty Builders
