Hello, Tax Season. We’re back, as we are every year. Though we’ve yet to pass through the gauntlet of April 14, it’s time to talk about all the ways we can pay fewer taxes next year as we assess what we currently owe on our taxes, or—if we were smart—what we’ll get back this year. Though we have a bit of time to prepare, it never hurts to start early. So why not take a peek right now at what a homeowner can expect?
Maybe you finally bought a house this year and you’ll have the chance to write off the standard home-related expenses. Is that you? Well done, it’s kind of satisfying to hit all those #adulting milestones.
But if you haven’t made that major purchase yet and you’re thinking about taking the leap into the realm of homeownership over the next year, there are multiple reasons it can be a wise move when it comes to easing the pain of how much you owe Uncle Sam. Even better, maybe buying a home will enhance that tax return you definitely deserve. Knowing the details can maximize your potential and increase the purpose of homeownership.
Write Off Mortgage Interest
The biggest factor that most people consider when it comes to how homeownership can positively impact their taxes is the mortgage interest deduction. This is the amount you pay over the course of a year toward the interest on your home loan. For homes bought in and after tax year 2018, you can deduct the interest on up to $750,000 of debt used to acquire (or improve) your home. Prior to December 15, 2017, the amount was $1 million—all that means is simply that the landscape of tax breaks has changed slightly. But it is still a major boon when it comes to figuring out how homeownership can affect your finances.
Write Off Property Tax
Another major beneficial influence on how your taxes wash out due to homeownership is your property tax. These days (post-Trump tax plan), the cap on how much you can deduct from your taxable income is $10,000. But that’s still a helpful amount. Consider it this way: if you pay $4,000 on property tax, you may reduce your taxable income by that amount, which lowers how much you’ll pay in federal taxes for the year.
Making the leap from renting to homeownership is a major milestone. If you’re wondering how you can get into a home in the first place, a tax refund as a downpayment is an excellent place to start. Maybe this is the year for you to take that step! It’s a great goal—we’ve all been there—and please remember that we’re here to help.
Please consult a tax professional about your specific situation and the tax savings benefits of homeownership.