Thinking about buying a home?
There are plenty of perks if you own a home. You don’t have to pay rent and you can decorate your home to suit your personality. But there are other benefits to homeownership – financial benefits.
If you rented in the past, you know very well that all your money went to a landlord, and none of it came back to you. But as a homeowner, you can receive tax deductions and credits. The Internal Revenue Service (IRS) provides several tax breaks to make homeownership affordable. Common tax deductions include those for mortgage interest and private mortgage insurance (PMI).
We’ll break down the top three tax benefits of homeownership, but always be sure to consult with a licensed tax specialist about your specific situation and what you can and cannot deduct on both your state (if applicable) and federal returns.
Mortgage Interest Deductions
The mortgage interest deduction is arguably the most common for homeowners. This deduction also includes any interest paid on home equity loans and home equity lines of credit (HELOCs).
Homeowners may be able to reduce their taxable income by deducting property taxes they pay on their homes. These days, the cap on how much you can deduct from your taxable income is $10,000 but can still help you save some money come tax time.
Private Mortgage Insurance (PMI)
The IRS will allow homeowners to deduct qualified mortgage insurance on their 2021 tax returns; however, there is an income gap. The IRS states that if your adjustable gross income is more than $100,000 ($50,000 if filing separately), the amount of your mortgage insurance premiums that are otherwise deductible is reduced or even eliminated.
When you own a home and you paid more than $600 in interest for your mortgage, you will receive a Form 1098 every year from your lender that will detail how much money you paid in mortgage interest during the tax year.
For questions on how to itemize your deductions, consult with a licensed tax specialist.
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