Do you ever wonder why so many Americans dream of owning a home? From complete privacy to a nest egg in the future, one lesser-known but vital reason why homeownership is something everyone is longing to achieve is the tax breaks it provides. No one enjoys paying taxes so owning a home set you aside for tax breaks that renters are not able to claim So whether you are gearing up to buy a house or you are a homeowner preparing to file your taxes the season. This post will cover six significant tax breaks homeowners can enjoy.
What Are Tax Breaks?
You might think the term "Tax break" is another real estate complicated term but actually, it is not. Here is how ridiculously easy the meaning is: A Tax break means the government is providing you a reduction in your taxes. Plain and simple. Here are some common tax breaks for homeowners.
Common Tax Breaks for Homeowners
Mortgage Interest
Owning a home comes with several perks. One of them is that you can deduct the interest paid on the initial and second mortgage up to a million dollars in mortgage debt. To be eligible for a mortgage interest tax break, you must fulfill these requirements:
- You must have filed an IRS from 1040 and listed your deductions
- The mortgage must be a secured debt on a qualified home in which you are the owner.
State and Local Property Taxes
The property taxes from your city or State can be deducted from your income annually. But please note there is an exclusion to the deductible expenditure.
Rental Income
As a homeowner, when you rent out a room in your house or even the entire place will make you eligible for a 20% deduction on business income.
Equity Loan Interest
Another tax break you can enjoy as a homeowner is that you can lessen the amount of interest you pay on your home equity loans. However, there is a limit to the number of debts you add within the "home equity" scope.
Home Office Expenses
Working from home is the new norm of the 21st century, and many homeowners are taking full advantage of their space. If you work from your home, you will be able to reduce costs for the office space on your itemized deduction.
Capital Gains from a Home Sale
Not all tax breaks come from owning a home. Selling you your home often gives you a kind of tax break which is only know by a few people. If you would like to sell your home in the future, the capital gain will allow you to keep the profit you get from selling the house without paying any tax on it.
If you want to know more about tax breaks to get prepared for the next tax season, discuss with your local accountant.