At City Creek Mortgage, we regularly give our clients basic information on why it often makes more sense to own a home than to continue renting. Homeownership comes with several financial perks, even if the up-front price may seem imposing at first, and our loan advisors can help get you the best mortgage loan that will show you major financial benefits as the years go on.
One of the primary plusses here? Tax breaks, which are possible in several areas for homeowners. Let’s look at some of the major deductions you should be prioritizing when it comes to tax season if you own a home.
The primary tax benefit to think about here is deductions from any interest that you pay on your mortgage throughout the course of the year – often significant amounts. These deductions can include not only primary mortgages, but also second mortgages, home equity loans, lines of credit and even other forms of interest.
Do know that these extensions are limited here – you cannot deduct interest for a third or fourth home. But if you’re married and filing jointly, you can deduct payments up to $1 million dollars per year, or up to $500,000 per year if married and filing separately.
Another form of paying interest for some people is purchasing points, which can also be used for refinancing. Both of these point formats may be tax deductible, though know that points purchased for refinancing purposes can only be deducted over the life of the loan, rather than all at once. You can write off the balance of old points at tax time, then begin to amortize the new points.
You’ll pay basic city and state property taxes as a homeowner, and these can be deducted in full on your tax return. Your property taxes will show up on your escrow statement annually if you use an escrow account for these payments.
In certain cases, you’ll be able to deduct moving costs from taxes at the end of the year. This is usually only possible if your move was necessitated by a job change, and you’ll have to meet a few additional requirements as well (regarding the distance from your old job to your new one and similar factors). If you qualify, however, you can deduct things like transportation costs, lodging expenses and storage fees.
Home Improvement Loans
In some situations, you might be taking out a loan to make major home improvements. In these cases, any interest paid on these loans can also be deducted – so long as the work is considered a “capital improvement.” Here’s what qualifies you for this category:
- Adds to the value or prolongs the useful life of part of the property
- Becomes part of the property in a way that removal would cause damage
- Is intended as a permanent installation
For more on the kinds of tax breaks you qualify for as a homeowner, or to learn about any of our mortgage services, speak to the pros at City Creek Mortgage today.