If you’re thinking about buying your first home, you have more incentives for purchasing one other than the good deal you can land in today’s housing market. Home ownership comes with some pretty nifty tax breaks, besides the pride of owning your own place and building equity (instead of throwing away your cash on rent).
So, as you stress about the income tax returns to Uncle Sam you just paid, look on the bright side and consider the tax perks of owning a home — instead of feeling squeamish about buying one.
Here are the tax benefits, as described by Bankrate.com:
All the interest you pay on your monthly mortgage is deductible, unless your loan is more than $1 million. Interest tax breaks also apply to the extra cash you pull out from refinancing, or if you decide to get a home equity loan or line of credit later on.
If you paid points to get a better rate on any of your various home loans, the points offer a tax break. (Points are interest charges you pay upfront when you close on your loan.) You can deduct points in the tax year you paid them. If you're refinancing a loan, the points are tax deductible over the life of the loan.
A big part of most monthly loan payments is taxes, which go into an escrow account for payment once a year. This amount should be included on the annual statement you get from your lender, along with your loan interest information. These taxes will be an annual deduction for as long as you own your home.
Mortgage interest, points and property tax deductions are itemized deductions you indicate on Schedule A of IRS Form 1040. Get the entire scoop on Tax Information for First-Time Homeowners from Publication 530 from the IRS.
When you sell
When you decide to move up to a bigger home, you will be able to avoid some taxes on the profit you make. Here’s how it works: You need to have owned the property for two years and lived in it for two of the five years before the sale. For singles, $250,000 of the sale is tax-free, while married couples (joint filers) enjoy a tax break for $500,000 in sales gain. Learn more about Selling Your Home in IRS Publication 523.
Stay tuned for possibly more tax credits in the coming year, as Congress and the White House try to hammer out a plan to revive the battered housing market.