While considering if you should rent or buy a house, one of the most important variables is the tax reductions. Incredibly, homeowners who itemize their taxes can deduct 100% of their mortgage interest and property taxes from their income tax returns.
Which means that if you are in a 28% tax bracket, you are effectively subsidized around 33% of your borrowing costs or more, rendering your house more affordable or even enabling you to buy a bigger home than you could have normally. Also, big portions of your closing costs are tax deductible, and hundreds of thousands of dollars of any profit (or capital gains) that you attain after you sell your home are exempt from income taxes.
During tax time, it is important to know what you're qualified to receive, so that you can claim it. So, here are a few crucial need-to-knows about home-related income tax hints to aid you to get the most tax-reducing bang out of your home-owning buck -- and to prevent big home ownership-related tax traps.
Through the course of the recent debate on Capitol Hill about if the mortgage interest deduction should be removed (it will not be, not anytime soon), it came out that almost 40% of homeowners miss out on their major tax benefits each year when they don't itemize their income taxes. For those who own a home and otherwise have a fairly straightforward return, it may be alluring to simply use the standard deduction -- and if your mortgage, property taxes, and income are low enough, the standard deduction may be greater than your homeowners' write offs. But you may never realize if you're losing out on the tax gains of itemizing unless you try. Before you pick up a pen and begin completing that 1040-EZ grab those forms from your mortgage company and fill in the questions on tax software like TurboTax, that can automatically do the math on whether itemizing or using the standard deduction will bring about the lowest tax bill -- or the highest tax refund -- for you. If you are uncomfortable taking this step by yourself, consult your tax attorney for assistance.
According to the Small Business Administration, the average home office deduction is $3,686 -- multiply that by your tax bracket -- 15%, 20%, 30% or whatever it is, and it is what you'll save on your taxes by writing off your home office. Know, though, that the area you specify as your home office can't be exempted from capital gains tax when you sell your home down the road. The $250,000 (single)/ $500,000 (married filing jointly) income tax exemption for capital gains is only good on your personal residence, after all -- excluding any area in your home you've stated as your tax-advantaged office. If you anticipate selling your home for a great deal more than you bought it in the future, near or far, go over this with your tax preparer to see if the few hundred bucks you'll save is really worth the capital gains problem later.
Which means that if you are in a 28% tax bracket, you are effectively subsidized around 33% of your borrowing costs or more, rendering your house more affordable or even enabling you to buy a bigger home than you could have normally. Also, big portions of your closing costs are tax deductible, and hundreds of thousands of dollars of any profit (or capital gains) that you attain after you sell your home are exempt from income taxes.
During tax time, it is important to know what you're qualified to receive, so that you can claim it. So, here are a few crucial need-to-knows about home-related income tax hints to aid you to get the most tax-reducing bang out of your home-owning buck -- and to prevent big home ownership-related tax traps.
Through the course of the recent debate on Capitol Hill about if the mortgage interest deduction should be removed (it will not be, not anytime soon), it came out that almost 40% of homeowners miss out on their major tax benefits each year when they don't itemize their income taxes. For those who own a home and otherwise have a fairly straightforward return, it may be alluring to simply use the standard deduction -- and if your mortgage, property taxes, and income are low enough, the standard deduction may be greater than your homeowners' write offs. But you may never realize if you're losing out on the tax gains of itemizing unless you try. Before you pick up a pen and begin completing that 1040-EZ grab those forms from your mortgage company and fill in the questions on tax software like TurboTax, that can automatically do the math on whether itemizing or using the standard deduction will bring about the lowest tax bill -- or the highest tax refund -- for you. If you are uncomfortable taking this step by yourself, consult your tax attorney for assistance.
According to the Small Business Administration, the average home office deduction is $3,686 -- multiply that by your tax bracket -- 15%, 20%, 30% or whatever it is, and it is what you'll save on your taxes by writing off your home office. Know, though, that the area you specify as your home office can't be exempted from capital gains tax when you sell your home down the road. The $250,000 (single)/ $500,000 (married filing jointly) income tax exemption for capital gains is only good on your personal residence, after all -- excluding any area in your home you've stated as your tax-advantaged office. If you anticipate selling your home for a great deal more than you bought it in the future, near or far, go over this with your tax preparer to see if the few hundred bucks you'll save is really worth the capital gains problem later.
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