Buying a home is a big deal, and most likely the most expensive purchase you’ll make in your lifetime. Thankfully, your purchase comes with a few perks. There are several tax deductions available when buying a home that can put a good chunk of cash back in your pocket. Here are a few tax advantages that make your home a great investment.
Mortgage Tax Deduction Benefits when Buying a Home
Tax codes give homeowners the choice to deduct the mortgage interest from their tax obligations. This can equal to a huge deduction for many owners since interest payments make up a large amount of your mortgage payment.
Also, when buying a home you can begin claiming points on your loan the first year. These points are called origination fees and can be claimed even if the seller pays for them. Origination fees of one percent, or more, are common and can add up to big savings for buyers.
Property tax is also deductible. Real estate property taxes paid on your home are fully deductible for income tax purposes.
Tax Deduction on Home Equity Lines
You can also deduct the interest paid on a home equity loan. This gives you the chance to shift your credit card debts to your home equity loan. You’ll pay a much lower interest rate than those offered by credit card companies and get a deduction on the interest as well.
If you are buying a home and self-employed or do freelance work in a home office, deductions can save you money on your taxes. The IRS allows you to write off a portion of your regular expenses that you spend to conduct business at home. This includes electricity, water, Internet, and other costs. When calculating your home office deduction, measure what percentage of your living space your offices takes up and how much you spend each year.