If you’re thinking about buying a new home, you may be surprised to know that the government has implemented several incentives and tax benefits for doing so. While it’s no secret that real estate values have declined and the housing industry has experienced decelerated growth, from coast to coast over the past 18 months; this doesn’t necessarily mean that you should hold off on purchasing your next home. In fact, if you take into consideration that local markets throughout the majority of U.S. cities have reached a bottoming out stage; you can be fairly certain that your new home will have appreciated nicely over the next several years. To help make home buying more attractive, the government provides homeowners with multiple tax credits and deductions.
Did you know that as a homeowner you are entitled to deduct interest expenses on your original loan (up to $1 million)? You can also deduct interest expenses on: a second home loan (up to $100,000), on home equity indebtedness (up to $100,000)—regardless of how you choose to use the funds.
As a homeowner you are also entitled to deduct points paid to purchase your house. You can deduct points the same year you purchase your home, if you opt to itemize your deductions. Each point is the equivalent of 1% of the entire cost of the loan. Points are also deducted for fees that the seller pays for you, such as broker fees, appraisal fees, underwriting fees, and homeowner’s insurance.
Real estate tax, imposed on local and state levels, is another fee that homeowners are eligible to deduct. There is also an exclusion of capital gains. In other words when you sell your home, you are permitted to exclude a portion of the profit. Single income tax filers are entitled to receive up to $250,000, while married couples can exclude up to $500,000.
If you operate a business from home, you can deduct the operating expenses. The home office deduction permits you to deduct depreciation for the portion of your home that you use for your business. You are also allowed to deduct office equipment, including computers, fax machines, and printers; communication fees—telephone, fax, and Internet; utilities, office furniture, and any other costs pertaining to your business.
In 2007, the government introduced an itemized deduction on Schedule A for homeowner’s mortgage insurance expenses. There are also miscellaneous credits that homeowners can receive, such as the Energy Credit. This allows the homeowner to collect $200 for home improvements that make your home more energy efficient. This can be applied towards most Energy Star approved appliances and fixtures.
The average homeowner is entitled to receive any and all of the benefits listed above. However, for clarification and specifics on certain rules and restrictions on each of the deduction you are eligible to receive, you should contact a certified public accountant or tax professional.