From a financial standpoint, owning a home can be a great decision. Whereas rent is an expense you will never see a return on, mortgage payments are an investment in your property. They give you equity. And assuming you bought a house for the right price in the right area, your home will likely increase in value over the time you live there.
But these aren’t the only financial upsides to home owning. You also have some distinct tax advantages. Here are a few things you can look forward to come tax time as a home owner.
Interest and Property Tax Deductions
Like any loan, your mortgage is attached to an interest rate, and with each payment you’re making, a part of that is going to the accrued interest. This mortgage interest can be deducted from your taxes.
Additionally, when buying a home, you will pay a property tax fee. This can be deducted from your taxes.
When you file for your mortgage, you’ll be charged with a number of fees by your lender. Some of these fees are what’s known as points. Each point can be deducted from your taxes.
Improving your home can quickly add up in cost. In fact, you may have to take out a loan so you can afford it. The good news is, you might be able to deduct this loan’s interest from your taxes. However, there are restrictions.
The renovations the loan is covering must be considered a “capital improvement”. That means it adds to the overall value of the home. This does not include repairs on general wear and tear.
No Capital Gains Tax Upon Selling
If you sell something for a higher amount than what you paid for it, you’ll likely be subject to a capital gains tax. The good news is, this doesn’t apply to your home.
Usually. There are a few restrictions.
There’s a cap of $250,000 if you’re single (or $500,000 if you’re married), so any gains over that will be taxed. You must also have lived in the residence for two of the past five years, and you can’t have claimed another home sale for exclusion in the past 2 years.
Home Office Deductions
Do you work from home? Well, if you set yourself up with a home office, you may be able to deduct some of your actual mortgage and home expenses. Now, this is something that can quickly be abused, which can result in an audit.
It’s best to be cautious and conservative.
First, you need a room or area that’s exclusively used for work purposes. The items purchased for this area can be deducted as work expenses. The percent of square footage it takes up can be deducted. And you may even be able to deduct a small portion of electricity and internet.
When in Doubt, Ask a Professional
Taxes are complicated. This is a fact of life. That’s why it’s important to consult someone who is actually trained and educated in tax codes and laws. They’ll not only guide you in what to do, but they might find tax breaks you’re completely missing.
That’s why over 75% of taxpayers believe they benefit from using a professional tax advisor.
Whether you’re looking for tax services, accounting help, or a payroll service company in Springfield, OH, LWS has you covered. Contact us today!