Tax Advantages of Home Ownership
You took the plunge, you bought a home! And now you’re going to be filing your taxes for the first time as a brand new homeowner. Make sure you take advantage of the tax benefits you are allowed as a homeowner. Some example of tax benefits for home owners are:
1. You get to deduct your property taxes. You know that huge bill that comes out twice a year from the county? Yep, you get to a claim a deduction for property taxes, as long as you claim the deduction the year you actually paid the taxes. For example, in Cook County and the collar counties, we pay our taxes twice a year, but the bill is for the previous year. You paid 2015 taxes in 2016, and in 2017, you will pay the taxes for 2016. So when you file your 2016 tax return, you can claim the taxes you paid in 2016 (which were for calendar year 2015).
2. You get to deduct all that interest you’re paying on your mortgage. Think back to your closing. Your attorney showed you the amortization schedule from the bank (pages and pages of numbers) showing how much you will pay in interest over the life of your loan. Well, every year you get to deduct that year’s portion of interest. If you file taxes as a single taxpayer, you can claim interest on a loan amount up to $500,000. If you file your taxes jointly, you can deduct your interest on a loan amount up to $1,000,000. Don’t forget to deduct the interest on your home equity line of credit too!
3. If you borrowed more than 80% of the value of your home, and you pay PMI (property mortgage insurance), you get to deduct your PMI, so long as you are single and your income is $50,000 or less, or you file your taxes jointly and your income is $100,000 or less. Above those amounts, the deduction starts to phase out, and it disappears completely for singles earning $54,500 or more, or couples earning $109,000 or more.
4. If you paid points to your lender when purchasing your primary residence, and assuming those points were in line with standard practice, you get to deduct them. If you paid points but they were way out of line, or were not paid toward the purchase of your primary residence, you may still be able to deduct them over time.
5. If you have a dedicated home office, you may be able to get a deduction for it. You will need to know the square footage of the office, as compared to your home, and the associated expenses.
This should by no means by construed as tax advice, and I am not a tax attorney. Your taxes should be discussed with a qualified accountant who can guide you on which deductions you qualify for individually, and how much you can actually claim.