Homeownership Tax Benefits

There are some tax benefits in purchasing a home vs. renting.  You should speak with a bona fide tax professional and have a tax professional run the numbers to find out what benefits you may qualify for. 

Purchasing a Home: 

Home Mortgage Interest Deduction:  At this time, the interest paid on a mortgage or mortgage of up to $1 million for a principal resident and/or second home is deductible as an itemized deduction.   

Home Equity Loan Deduction:  Homeowners can borrow up to $100,000 against the equity in their home and deduct the interest as an itemized deduction.  The money can be used for any purpose, such as paying off high-interest credit card debt.  Credit card interest is not deductible. 

Property Tax Deduction:  Homeowners also get to deduct from their federal income taxes the state and local property taxes they pay on their home. 

Deductible home buying expenses:  Various closing costs ordinarily involved in a home purchase are also deductible as itemized deductions, including points, prorated interest and taxes. 

$250,000/$500,000 home-sale exclusion:  Perhaps the greatest tax benefit of owning a home comes when a person sells it at a profit.  Homeowners who lived in their home for two of the prior five years prior to its sale need pay no income tax on a substantial amount of their profit – $250,000 for single homeowner’s and $500,000 for married homeowners who file jointly.  This exclusion can be used once every 24 months. 

14 days of free rental income:  Another little known tax benefit of owning a home is that the owner can rent it out for up to 14 days during the year and pay no tax at all on the rental income.   

Renting a home: 

Home Office deduction:  The only tax benefit that a renter can qualify for by virtue of being a renter is the home office deduction.  This is a business deduction available to renters who own a business and have a home office they use regularly and exclusively for business purposes. 

Of course, the value of the tax benefits of buying a home depends on the state the buyer live in and their tax bracket.  Buyers who live in high tax states like New York or California get the most benefit.  

Source:  Inman News and Stephen Fishman

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