Many people wonder if now is the right time to purchase a new home. Some experts claim that renting is a better option right now, still, others say that purchasing a new home is a great investment in an uncertain economy because of the tax breaks. If you rent, you will miss a lot of deductions that you would get if you owned your own home.
Home Mortgage Interest- If you are renting your home, not rent-to-own, you are only paying down the home-owner’s mortgage interest. Deductions for mortgage interest are one of the biggest deductions on a Schedule A. It reduces your total tax liability.
Home Property Tax- Property taxes are another big part of your itemized expenses, but if you rent, you are only paying the home-owner’s property tax without any benefit to you.
Home Equity Interest- You can deduct interest on your home equity loan. Most taxpayers aren’t aware of this deduction, so they end up missing it.
Second Home Mortgage Interest- Most taxpayers don’t know that the interest from second homes or vacation homes can be deducted each year. If you own the title on a time share, the mortgage interest on that is deductible, as well.
Second Home Property Tax- Since you are allowed to deduct your second home mortgage interest, you can also deduct the property taxes on your second home. A lot of taxpayers miss this one, too.
Private Mortgage Insurance (PMI)- If you are required to pay private mortgage insurance, the premiums are deductible for mortgages that were made between 2007 and 2011. The IRS will, however, reduce this deduction based on your total income, so, for taxpayers in a lower tax bracket, it’s a nice benefit for this year.
There are capital gains exclusions when you sell your home, as well. The above mentioned examples are just a few of the major deductions you, as a home owner, can take. Talk to a tax professional if you have questions about any of these deductions.
