There are many ways in which tax credits and deductions favor home ownership. Make sure you read the whole article! Take advantages of the links, which include more detailed articles. This way, you learn exactly how to take advantage of these benefits.
Tax Credits to Home Buyers
While the $8,000 first-time homebuyer tax credit from the IRS expired, there are still other first-timer benefits. Many state and local governments offer the Mortgage Credit Certificate program (MCC).
The MCC program provides eligible borrowers a dollar-for-dollar tax credit. This lowers the amount of federal taxes the IRS requires. An MCC includes an on-going federal tax credit. The credit can continue year after year for as long as you retain the loan and occupy the home as your primary residence.
Tax Credits to Home Owners
There are many tax benefits and deductions for homeowners.
Homeowners’ monthly mortgage payments are made up almost entirely by interest for the first few years. The interest payments on any mortgage (homestead or rental properties) are tax deductible.
The interest on loans for home improvement may also be deductible.
Homeowners who make a down payment of less than 20% are usually paying some sort of Private Mortgage Insurance. PMI (sometimes abbreviated MIP or just MI), can be a few dollars to hundreds of dollars per month, and it is a large portion of many homeowners’ mortgage payments.
Homeowners who paid points on their home purchase or refinance can often deduct those points on their tax returns.
Also called loan origination fees, maximum loan charges, loan discounts or discount points.
Homeowners who do not itemize will get to claim at least a portion of their real estate tax payments as part of their standard deduction.
Home Office Deduction
Homeowners also deduct a percentage of their mortgage, utilities, and repair bills. The deduction is available in direct proportion to the amount of their home that is dedicated office space.
Mortgage Forgiveness Act of 2007
The law’s main provision allows taxpayers to exclude debt forgiven on their principal residence when the mortgage is restructured or the property goes into foreclosure.
Energy Tax Incentives
In 2005, the Energy Tax Incentives Act created many tax breaks for homeowners who made energy-efficient improvements to their homes.
Tax Credits to Home Sellers
In 1997 the law regarding property tax on property sales changed so that up to $250,000 in sales gain ($500,000 for married joint filers) is tax-free as long as the homeowner owned the property for two years and lived in it for two of the five years before the sale.
Additionally, a provision in the Mortgage Forgiveness Debt Relief Act of 2007 now offers surviving spouses some tax relief in connection with one of those decisions, the sale of the family home. In most cases, a seller can exclude up to $250,000 in profit from the sale of a primary residence. The tax-free amount is $500,000 when a married couple filing a joint return sells the home.