Home ownership is part of the American dream…but so is financial stability. Thankfully, the two can complement each other when it comes to tax time. Clearly, tax planning is critical, and understanding the rules and how they apply to you is where GreenStone tax experts can help. We want to you to be successful in both areas, so let’s discuss the tax benefits for building, buying, and improving a home.
Home mortgage deduction
The home mortgage interest deduction is the first place to find your home ownership tax break. With this, you can count interest you paid on a loan related to building, buying, or improving a home, and put it towards your total itemized deductions. In order to itemize deductions, the total needs to be greater than the standard deduction of $12,550 for single and $25,100 for married filing jointly. Overall, this will lower the amount of taxes you’ll owe. Also, this can apply to two personal residences.
When you purchased your home, you paid ‘settlement’ or ‘closing costs’ in addition to the contract price. These costs are usually divided between you and the seller on the sales contract. If you built your home, these costs were probably paid when you bought the land or settled on your mortgage. To prepare for this deduction, bring your closing statement and Form 1098 from your mortgage company to your tax accountant. You can also deduct certain property taxes the year you buy your home if you itemize.
Real estate taxes are annual taxes homeowners pay on the assessed value of a home. When you itemize, you can deduct property taxes from your main residence and any other real estate you own, up to a maximum of $10,000 ($5,000 for filing single). Basically, real estate taxes are deductible for all the property you own. Check Schedule A – Itemized Deductions for details.
Sale of personal residence
After you live in your home for two or more years, you can sell it and exempt it up to $250,000 (or $500,000 per couple) from income tax on its sale. This allows you to shelter the appreciation on your home, build equity and move it into another home, or invest it without paying income tax on the gain.
We’re happy to work with you on your dream home – and your dream tax deductions! Please contact your local GreenStone branch for assistance.