In the spirit of tax season, because they get me just so excited I can barely contain it, here are some tax benefits you can claim on your taxes as deductions. Reason to stop renting and purchase something? ....Quite possibly.
Deductible homebuying expenses: Certain closing costs involved in a home purchase are deductible from your taxes as itemized deductions. Loan origination fees or points, prorated interest on a new loan, and prorated property taxes paid at settlement for example are all deductions you can claim on your taxes.
Home mortgage interest deduction: Interest paid on a mortgage or mortgages of up to $1 million for a principle, homestead and/or a second home is deductible as an itemized deduction. With interest payments being particularly high in the early stages of a loan, this deduction can be particularly substantial during the first years of home ownership.
Depending on the state a buyer lives in and the tax bracket their in, this deduction can reduce the cost of borrowing by one-third or more.
Property tax deduction: Homeowners can deduct state and local property taxes they on their home from their federal income taxes. Renter's won't get this kind of itemized deduction.
Home equity loan deduction: Homeowners can borrow up to $100,000 against the equity in their home and deduct the interest paid as an itemized deduction.
$250,000/$500,000 home-sale exclusion: The most financially glorious benefit of owning a home is the tax savings when a person sells it for a profit. If you sell your home and gain a profit of $250,000 for single homeowners and $500,000 for married homeowners who file jointly, you don't have to pay income tax on the gain of appreciation. CHA-CHING! The stipulation is that the homeowner must have lived in the home for two of the prior five years before it's sale. This exclusion can be used once every 24 months.
14 days of free rental income: A homeowner can rent out the home for up to 14 days during the year and pay no tax on that rental income. A renter who sublets their rental must pay income on ALL the rental income they earn.
There are also deductions such as a home office deduction where you can deduct the square footage of your home that is used REGULARLY AND EXCLUSIVELY as a home office from your property taxes. Renters can do this deduction as well.
Values of deductions can vary by state and it is recommended that you talk to a professional tax adviser before claiming any deductions on your taxes. Whatever the case, it is clear that the tax benefits of owning a home are far greater than renting.
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