When it comes to tax savings it really is home sweet home. Here are some of the popular tax benefits of owning your own home and how to get the most out of your home’s tax advantaged status.
|Mortgage interest. Interest paid on your home mortgage is still tax deductible. This deduction is taken on Schedule A as an itemized deduction. Certain upward limits apply.|
|Property taxes. Property taxes paid on your home are also tax deductible as an itemized deduction.|
|Home Equity. Most homeowners can take out a second mortgage on the “equity” in their home. In most cases, this interest expense is also tax deductible. Many use home equity loans for purchasing autos, boats, and the like since interest on traditional loans is not tax deductible.Idea: Consolidate credit card debt within a home equity loan or home equity line of credit if your home is worth more than your outstanding mortgage balance. You have the double advantage of deducting the interest on your tax return PLUS you avoid the higher interest rate on your credit card. A word of caution however, if you default on a payment your house is now the collateral.|
|Capital Gains Exclusion. When you sell your home, up to $500,000 for joint filers ($250,000 for single taxpayers) of the increased value over what you paid for the home can be excluded from tax. To take advantage of this capital gains exclusion you must make the home your principal residence in two of the last five years.|
|Idea: The capital gain exclusion on home sale can be used more than once. For example, you could sell your qualified main home and take the exclusion. If you then made a second (vacation) home your new main home you could also take the gain exclusion once again. You would need to meet the IRS ownership and use rules to qualify. Special allocation rules might apply if this second home was also rental property.|
|Second home benefits. A second home (cabin or vacation home) can also benefit from interest and property tax deductibility as long as total mortgages do not exceed certain limits.|
Should you have any questions regarding your situation please feel free to call.