iowahomeloans

Tax Laws Favor Home Ownership

Posted on: January 1, 2014

If you’re asking yourself whether now is the time to buy a home or keep renting, there’s probably one aspect of home ownership you haven’t considered: tax laws favor home ownership. While owning a home does come with certain ongoing costs, such as taxes and insurance, buying a home can also save you money on your taxes. Don’t forget to think about things like the homestead exemption, interest on your mortgage, real estate taxes and even points on your new mortgage; these items may all be be tax deductible. 

Deduct Interest on Your Mortgage

You might not realize it, but in most cases, you can deduct the interest that you pay on your mortgage when you itemize your deductions. When you buy a new home, the majority of your mortgage payments for the first several years goes to interest. That means the majority of your mortgage payments for the first several years are tax deductible. Rent isn’t.

Deducting Points When Buying a Home

If you pay cash up front at your closing to buy down points on your interest rate, that cash may be tax deductible. For example, if you buy a $300,000 home, and pay down two points on your mortgage for a total of $6,000 at closing, you might be able to deduct that $6,000 on your taxes – even if the seller paid it for you, in some cases.

Real Estate Tax is Tax Deductible

Did you know that the property tax you pay on your new home is tax deductible? Tax laws are structured so you don’t pay taxes twice on your income, and so the portion of your income that goes toward your real estate tax is tax deductible as non-taxed income.

Homestead Exemption

Homestead laws vary from state to state, but the homestead exemption can do everything from shelter you from a portion of property tax due, to shelter a portion of your home’s value in the event of angry creditors or a bankruptcy. Check your local homestead laws to find out what benefits you could get, but the homestead exemption can provide some great tax and financial benefits.

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