Tax Advantages of Home Ownership

People just like you are discovering the secret to using their house and mortgage as a tax haven.

Tax Advantages of Home Ownership

As you read every word of this article, you will discover some of the incredible tax advantages of home ownership.

The government wants to encourage you to own your home. Therefore it allows a home owner to deduct certain costs you may incur from owning a house. In effect, the tax code allows you to reduce some of your out-of-pocket costs related to buying and owning your home.

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Some of the cost of owning a home can turn into tax deductions. You can also profit from the sale of your home tax free as well as borrow, reaping tax-free funds.

Rarely do you experience a larger purchase than a home and this very dwelling remains under your ownership for an extended period of time. There are costs of home ownership that are tax deductible and there are costs that do no qualify for deductions on your tax return. Always consult an accountant for up-to-date information regarding any tax issues.

Two deductions for home ownership expenses are property taxes and mortgage interest. Here is an example of how it works.

At the end of the year, your mortgage lender(s) will send you the total of interest you paid on your mortgage for the previous year. You should also have a property tax bill for property taxes the previous year.

Let's suppose that your mortgage interest last year totaled ,000 and your property taxes amounted to ,000 for a total of ,000. If you are in the 28% tax bracket your actual costs out-of-pocket would be ,800. So the deductible value is ,000 X 28% or .200.

Caution: Home owners in high-income brackets are advised to seek counsel from a qualified financial adviser. Your tax advantages may be less in this example.

Basically mortgage interest is deductible for your primary residence and for one additional home such as a vacation home. For purchase money loans, mortgages originated for the purpose of buying a house, interest can be deducted on loans up to million. For mortgages on your home other than for buying your home, such as home renovation, interest can be deducted on loans up to 0,000.

Equally important, real estate property taxes are also deductible and there is no limitation to the dollar amount. This again reduces your cost out-of-pocket regarding property taxes.

Another way to look at these deductions is simply that the government is helping you pay the mortgage and property taxes.

Casualty and theft losses are can also be deducted. For example, if your house was damaged by a storm or fire, you could deduct the losses on your tax return if you are not compensated by insurance. The loss however must be greater than 10% of your adjusted gross income. Again, contact a financial specialist or accountant for details.

Quite a few home owners file for a deduction called Business Use Of A Home. Today many people work from home or have home based businesses. So remember at tax time to find out if the Business Use Of A Home Deduction is a savings you can take advantage of. For all the details regarding the business use of a home, the IRS has prepared Publication 587.

If you qualify you may be able to deduct allowable expenses as well as write off depreciation for use of the portion of your home that you use for an office. But be aware that you will have to recapture the depreciation when you sell.

Some expenses you are not allowed to deduct are homeowners insurance, maintenance, repairs, or utilities.

And remember always consult an accountant, attorney or financial adviser regarding your specific financial situation.

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