This post is courtesy of Sean Harrington, CMG Financial...
As a mortgage consultant, I'm often asked about the tax deductions that may be available through owning a home. Before listing some of the tax benefits, it’s important to first explain what a tax deduction is. A tax deduction is simply a reduction in your taxable income. For example, if you made $75,000 in taxable income, a $10,000 tax deduction would reduce your taxable income to $65,000 ($75,000 - $10,000 = $65,000). If you were in the 25% tax bracket, a $10,000 tax deduction would result in a $2,500 tax savings ($10,000 * 0.25 = $2,500). The good news is that home ownership can provide some significant tax benefits. Here are some of the tax deductions that may be available.
Mortgage Interest Deduction. Each year the interest paid on your mortgage may be tax deductible up to $1 million in mortgage debt on a first or second home, if you're single or married filing jointly.
Property Tax Deduction. Real estate taxes may be deductible.
Purchase Costs Deduction. Loan discount points and origination fees may be tax deductible. Any "daily interest" paid on the mortgage at closing may also be deductible. We’ll provide you with your final closing statement after the close of escrow.
Capital Gains Exclusion. Married taxpayers who file jointly may be able to keep, tax-free, up to $500,000 in profit on the sale of a home used as a principal residence two out of the prior five years. Single and married filing separately may be able to keep up to $250,000 each tax-free.
Home Equity Loan Interest Deduction. The interest you pay on a home equity loan or line of credit may be deductible, up to certain limits specified by the IRS.
Home Improvement Loan Interest Deduction. If you take out a loan for a big home improvement, you may be able to deduct the interest. Check with www.irs.gov and a tax professional for the improvements that qualify.
The items listed above are some of the larger tax deductions that come with home ownership. However, additional tax benefits may exist. I always advise that tax matters be reviewed with a tax professional. I hope that you find this information useful. Please feel free to call or email with any questions.
Sean Harrington | Sr. Loan Officer | NMLS # 631480 I Branch NMLS # 1248193
CMG Financial | 275 N. York Road Ste 400 | Elmhurst, IL 60126
Office: (847) 809-7458 | Cell: | Email: firstname.lastname@example.org | Web: sharrington.cmgfi.com