It is tax season again. No one likes paying taxes, but as Benjamin Franklin once said, nothing is certain in life except death and taxes. Each year homeowners can take advantage of these tax benefits of having a mortgage. Tax benefits can save you money each year when it is time to file.
Tax Deductions
There are tax deductions specifically available to homeowners. Each year you can deduct the amount of interest you pay on your mortgage from your income. This deduction may put you into a lower tax bracket. It can save hundreds or even thousands of dollars each year. Your mortgage provider should send you an annual tax and interest statement. Bring this document with you to file your taxes,
If you recently sold or purchased a house this year you may qualify for another deduction. Many closing costs associated with buying or selling your home can be deducted as well.
Earn Equity Tax-Free – The biggest tax benefits
One of the biggest tax benefits of owning a house if one that isn’t spoken about often. The equity that is building on your home over time is not taxed. That’s right, after living in your home for several years, you may stand to make a large profit on it after it’s sold. This profit is not taxed if you meet the following conditions:
- You’ve owned the home for at least two years.
- The home was your primary residence for at least two years in the previous 5 years.
- You haven’t included the gain on another home sale in the past two years.
If you meet the conditions above you do not have to pay a capital gains tax on your home. That means the total profit on your home is available for you to walk away with. There are limits of the capital gains that are tax-exempt the number are $250,000 if you are single, and $500,000 if you are married. This is a huge tax benefit, it is income for your household that is not taxed.
Remember the tax benefits of homeownership while filing your taxes this year. Be sure to bring along the appropriate statements with you to take advantage of these benefits. If you don’t own a home yet, consider what these tax advantages would mean to you financially.