One of the benefits of buying a home is that it’s an investment likely to yield a higher return. If you buy a home for $200k today and sell it 10 years later, you’ll most likely sell it for more than what you paid for it. A first-time homebuyer has probably heard that owning a home offers tax benefits. But what exactly are the benefits a homebuyer can get?
Here are six tax benefits that come with homeownership.
- Mortgage Interest
Deducting mortgage interest is one of the biggest tax benefits you’ll ever get. In January, lenders send a form that highlights the mortgage interest paid in the previous year. The amount you can deduct is up to $750,000 for any mortgage taken out after Dec. 15, 2017. Those taken out before that date can deduct up to $1 million.
- Property Taxes
Property taxes are deductible in most cases. Some homeowners have property taxes built into their monthly mortgage payment. A recent change now combines property taxes with state and local income taxes and is limited to $10,000.
- Mortgage Insurance Payments
Mortgage insurance only affects those who make a down payment of less than 20 percent of a home’s price tag. This insurance protects the lender in case the borrower fails to make a payment. These premiums can be deducted.
- Energy Credits
If the home you buy has energy-saving features or improvements, you can earn energy credit. This tax credit is better than a tax deduction because with energy credits your tax bill shrinks dollar-for-dollar. The amount and what qualifies depends on your state and the current tax incentives. Some tax incentives have an expiration date. Some depend on the age of the home.
- Home Improvements
Keep track of any home improvements you make as those may be tax deductible later when you sell your home. These changes include landscaping, fences, and storm windows. So start a file and just throw in your receipts with a description of the changes. Even though most home sales are tax-free, the IRS may try to tax the profit.
If the home improvements are for accessibility such as adding wheelchair ramps and widening doorways, those may be deductible in the current tax year rather than later. You may need a letter from the doctor to show the need for these changes.
- Home Office
More and more companies are allowing their employees to work remotely. People who work from home full-time can take a per-square-foot deduction up to 300 square feet of office space. This deduction does not apply to people who have an office and work from home on occasion.
Even with all these great tax benefits, it’s still important to consider other reasons for buying a home. For instance, do you have student loan debt? Can you handle a mortgage along with that? The key is to buy a home you can comfortably afford.
If you’re ready to be a first-time homebuyer or even second or third, check out these 4 Tips Before You Start House Hunting This Spring. Once you find the right house, here are 11 questions to ask your homebuilder to make sure you choose the right one for you.