August 28, 2020
Tax Benefits of Being a Homeowner
Home ownership is a goal for many. Not only is owning a home more affordable than renting in the long run, it also provides unique benefits.
One of the benefits of home ownership is how it affects your taxes. While a homeowner will probably not be eligible for all the benefits, it is still important to be familiar with them to see what applies to you and your home.
Listed below are some of the tax benefits and deductions available to homeowners:
- Mortgage interest deduction
This tax incentive is one of the most important, involving your mortgage payment. This type of tax incentive constantly evolves between updated tax laws. However, this type of incentive typically allows for homeowners to deduct the interest paid through your mortgage loan.
- State and local tax deduction
State and local taxes, sometimes referred to as SALT, can be applied depending on where you have purchased a home. These taxes can generally be deducted from a property owner’s federal income tax. Some homeowners find deductions available through their state’s income tax, so it is necessary to note that specific type of deduction is not available for people who reside in Florida. However, local tax deductions can be applied depending on county tax codes.
- Penalty-free IRA withdrawals
This home ownership benefit is unique from the others listed as it is not a deduction or related to your credit. First-time homebuyers can be eligible for a withdrawal up to $10,000 from an IRA to use as a down payment for their first home without paying the typical 10% penalty. This benefit of home ownership should be considered a trade as it can reduce your retirement savings.
- Imputed rent
Buying a home is considered to be an investment. Since you own the home, unlike renting, you do not pay a monthly rent to a landlord. The return on the investment of home ownership is known as imputed rent. This is excluded from taxable income.
Nearly all tax benefits and deductions provide more in savings for those in a higher income tax bracket versus those in a lower tax bracket. While these potential deductions can be appealing for those looking to buy, don’t let taxes be what makes you decide on your home. The process of home ownership is different for everyone, so consulting with your realtor is important to avoid as many hiccups as possible along the way.