If you are someone who has always rented your home and has finally managed to save enough to consider buying a home, you must be pondering on how the taxes would work. Once you become a tax owner, certain advantages come with it. 

Yes, you heard that right. Not only will you be living in the comfort of your home without any money going to a landlord, but you will also receive the tax advantages of owning a home. 

In today’s read, we will take you over what are the tax advantages of owning a home along with all the features that come with it. From understanding how tax deductions would work considering that you will be a homeowner to understanding if you are eligible for tax credits, we will guide you through it all. 

Now that you have your new house keys in your hand or you are on your way to sign the papers, here are the tax advantages of owning a home!

Tax Deductions For Homeowners

One of the key tax advantages of owning a home is that you will be awarded with tax deductions.

There is a very slight difference between tax deductions and tax credits. The latter means that you will be let off from paying an X amount of your total tax payable amount. Whereas in the case of tax deductions, the entire tax value imposed on your total income is readjusted to be reduced. As a result of this, your tax liability is decreased overall.

Now that you know the differences between tax credits and tax deductions, let us elaborate on the advantages of owning a home.

Mortgage Interest Deduction

What happens when you buy a house is that you are either paying off a loan or giving a share of the mortgage. Mortgage Interest Deduction is a tax advantage of owning a home. It is one of the leading incentives which promote the idea that one should buy a house for themselves. 

In Mortgage Interest Deduction, what fundamentally occurs is that the amount of interest that you have been paying monthly or yearly, you are awarded the same amount off on your overall tax charges. Hence, it is strictly recommended that one should always keep a good record of all the house or mortgage payments that they make over time. When you file your taxes, you can show the amount you paid for your home and have that amount laid off in your taxes. This applies to the first $750,000 of mortgage interest. 

This even applies to condos and homes. All you need to qualify for mortgage interest deduction is a personal property with a kitchen, toilet, and sleeping facilities. 

You can do this for multiple properties, but what should be kept in mind is that they all should fulfill the requirements of mortgage interest deductions. 

Home Sale Tax Advantages

Another great feature that has been offered as a tax advantage of owning a home is that you would not be required to pay hefty amounts in taxes when you are reselling your house.

If, for any reason, you have to resell the house that you have bought. There is usually a particular value of tax that you have to pay to the government. If you have lived in it for at least two years or the past five years since you sold the house, you would have to offer nothing as tax to the state government. 

It needs to be understood that this tax advantage of owning a home only applies to the first $250,000 of the profit that you make. It is the capital gain that is regarded as the profit here.

However, if you are married, and the finances are being held jointly, this amount is doubled to $500,000. This is said while keeping in mind that at least one of the couple should meet the requirements for ownership. And both should fulfill the criteria of residency.

There are short-term gains that apply if you have owned the house for less than a year, and if otherwise, the long-term ones are used. For the former, the taxes apply at your ordinary income tax rate. On the contrary, when it comes to long-term gains, it primarily depends on the filing status along with the income.

Tax Credits

You are also aware of what tax credits are. Another tax advantage of owning a home is using these tax credits. These can be applied if you direct your lifestyle and home to a greener and more sustainable way of living. For example, if you install solar panels to save on electricity.

Things To Look Out For

It needs to be highlighted that all these tax advantages of owning a home, especially those of tax deductions, apply when one itemizes their deductions and does not opt for the standard deductions.

Conclusion:

If you believe that you are making a strategy by paying large amounts of interest and getting tax deductions based on that, you might be wrong. Sometimes, homeowners can pay the loan off and do not because they want to maximize their tax deductions. This is not such a great idea. It is always advisable that you pay off the mortgage as soon as possible. 

And there you have it. Those are the tax advantages of owning a home. With tax deductions and credits highlighted, you should always be on your toes on what could apply where. By making the smallest of moves and alterations when filing for your taxes, you can have significant financial advantages as a homeowner!