6 Tax Benefits of Homeownership
Homeownership is usually a goal of most adults who rent. Besides creating a sense of community, building wealth and providing financial security, homeownership creates tax benefits. Here is a summary of six tax benefits for homeowners who itemize on their federal tax return:
1. Mortgage interest deduction
Mortgage interest paid throughout the calendar year is deductible on your taxes for mortgages up to $1 million for a loan issued prior to December 14, 2017, and up to $750,000 for any loans issued after that date. The limits count as your total housing-related debt, including the mortgage on your home, and a mortgage for a second home. The interest on a refinanced mortgage can also be deductible, subject to the same limits.
2. Home equity line of credit interest
The interest on a home equity loan or home equity line of credit can also be deducted when you file your taxes. The interest deduction is subject to the same $750,000 limit for total mortgage debt and only applies when the money borrowed goes toward the home itself, such as remodeling or renovating. You cannot deduct the interest for HELOC money used, for example, to buy a boat.
3. State and local property taxes
Deducting state and local property taxes on tax returns has always been a financial benefit. However, beginning in 2018, the total deduction for your combined state and local income, sales, and property taxes is capped at $10,000.
4. Mortgage insurance premiums
For those who purchase a home without putting 20% down and are required to buy mortgage insurance, those premiums may also be deducted.
5. Rental income
Those who rent out homes are required to report the additional income they receive on their taxes. However, the owner can deduct any costs of repairs and improvements made to that rental space. There are also interest and depreciation deductions.
6. Home office expenses
Self-employed workers who work exclusively from home may deduct costs for the space used in their homes for work. However, it cannot be in a room also used for other purposes (such as a bedroom or kitchen), and it must be used regularly.
For more information about the tax benefits of homeownership or if you have questions about any of our services, call TitlePlus today at (225) 709-3500.