Rarely does a person buy a home for the tax advantages alone. But for many Columbus home buyers, home ownership gives them enough deductible expenses to make it worth itemizing their income tax return. This opens the door to other tax deductions that an itemized return allows, and when combined, can make a significant difference in your tax obligation.
To illustrate some of the tax benefits of Columbus home ownership, we’re sharing tips from the Motley Fool and our own experience. Please remember that everyone’s tax situation is different, and not all of these deductions may apply to you. Obtain professional advice from your tax preparer, and visit IRS.gov to learn more.
Here’s examples of typical income tax deductions allowed for homeowners:
The interest portion of your mortgage payment is an allowable deduction on your itemized return. And since interest represents the majority of your mortgage payment during the early years of homeownership, it can add up!
As your mortgage loan amortizes, the amount of your payment that is applied to interest gradually diminishes, and more of your payment is applied to principal. This means that the amount of your interest paid, and therefore the amount of your deduction, will become a bit smaller with each passing year.
Mortgage loan amortization is a slow process, but one you should understand. For example, on a 30-year fixed-rate mortgage for $200,000, at 4% interest, it takes about 12 years, or 153 payments, for your P&I payment to apply nearly equally to principal and interest. When you discuss home financing with your mortgage lender, be sure to ask for an amortization schedule. This will illustrate how your P&I payments break down during the life of the loan.
There are limits to the amount of mortgage interest that may be claimed on a personal income tax return. Please refer to IRS Publication 936, and obtain guidance from your professional tax preparer.
Interest paid on home equity loans qualify as a tax deduction, provided the debt is secured by your home. Again, there are provisions and qualifications that apply, and you can find out more by visiting this IRS link.
PMI and MIP premiums are deductible, within certain income limits. The PMI deduction starts to phase out when you earn $50,000 a year as a single tax filer, or $100,000 as a couple filing jointly.
The deduction goes away completely when you earn more than $54,000 as a single filer, or $109,000 as a couple filing a joint return.
If you pay points when you purchase a home, these may be tax-deductible. Mortgage points are basically pre-paid interest, paid in a lump sum at closing to help lower the interest rate. A “point” on a mortgage is equal to 1% of the loan amount. One catch: if the points you pay are consistent with the market, you can typically deduct the entire cost of your points right away. Otherwise, you may need to spread out that deduction over the life of your loan.
The property taxes you pay are also tax deductible, for any real estate taxes paid during that calendar year.
Home office deductions are available if you’re self-employed, or work from home, and have a dedicated space in your home for work purposes. This used to be a complex deduction to calculate, but IRS rule changes in 2013 have eased the filing headaches. See the IRS rules about home office deductions, and consult with your tax preparer.
As your Exclusive Buyer’s Broker, we serve your best interests at all times! Unlike real estate agents and brokerages who represent sellers, as an Exclusive Buyer’s Broker, we only represent you, the buyer, getting you the best price and terms with no conflict of interest at all times.
Understanding this distinction could literally save you thousands of dollars not only on the purchase price and terms, but also on seller concessions and home inspection issues, whether you are a first-time homebuyer or an experienced homeowner!
Contact us with your home buying questions! Remember, we are with you every step of the way…all the way home!
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Buyer’s Resource Realty Services
Serving Metro Columbus, Ohio with Exclusive Buyer’s Agents
7100 North High Street, Suite 204, Worthington, Ohio 43085
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