Tax Advantages Of Having A Mortgage

Your monthly mortgage payment is the principal and the interest you pay for your loan. If you itemize on your tax return, you can deduct the total mortgage loan interest you paid that tax year. It is a sort of money-back guarantee: you chip in a little bit every month, and Uncle Sam pays you back at the end of the year in the form of a lower taxable income. Here are a few tax advantages of having a mortgage.

1. Mortgage Loan Interest

Tax dedications are awarded to individuals who pay interest on their mortgage. This includes the mortgages on homes loans, totaling $1 million or less. This is not offered on investment properties that are not your primary or secondary homes.

2. Equity Loan Interest

If you get an equity line of credit (a loan where the equity is securitized on the collateral of the home), you can deduct the interest from the loan amount if it is valued at $100,000 or less. There are no requirements on how this cash is spent.

3. Property Taxes

In most states, local governments charge property taxes. This tax generates income to support community needs like schools and law enforcement. Based on what part of the country you live in, the tax rates can vary dramatically. You can pay this tax with your monthly mortgage or in a lump sum. It is a deduction that can considerably decrease your taxable income if this is itemized on your tax returns.

4. Refinancing

Refinanced mortgage points are deductible. This occurs only over the life of the loan, not all at once.

5. Points

Your lender will charge you a multitude of fees, one of which is known as “points.” 1 point equals 1% of the loan principal. 1 to 3 points are common on home mortgages, which can cost thousands of dollars. You can deduct all points associated with a home purchase mortgage.

Home Improvement Loan Interest

If you make substantial home improvements, you can deduct the interest costs, no dollar limit necessary. Improvements include a new roof, fence, swimming pool, garage, porch, built-in appliances, insulation, heating/cooling systems, landscaping, or more. Improvements that do not count include repainting, plastering, wallpapering, replacing broken or cracked tiles, patching your roof, repairing broken windows, and fixing minor leaks.

Home Office Deduction

If you use your home for exclusive business purposes, you may be eligible to deduct related home costs. This can include a percentage of your insurance and repair costs and depreciation.

Selling Costs

If you sell your home, you’ll be able to reduce your capital gains tax by the amount of your selling costs. Selling costs include real estate broker’s commissions, title insurance, legal fees, advertising costs, administrative costs, and inspection fees.

Capital Gains Exclusion

Married taxpayers can keep up to $500,000 in profit on the sale of a home used as a principal residence for 2 of the prior 5 years without paying taxes on it.

Moving Costs

If you got a new job and were forced to move, you may have the opportunity to deduct some of your moving costs.

Mortgage Tax Credit

Mortgage credit certificate (MCC) is an organization that allows low-income, first-time homebuyers to benefit from a mortgage interest tax credit of up to 20% of the mortgage interest payments made on their home.