Tax Breaks For Homeowners
Owning a home is fantasy we all strive to match up to for the entire duration of our lives. Whether you’re young and starting out in the world, recently retired and looking forward to the prospect of finally purchasing a home, shelter remains the inescapable basic necessity that it is. If it was entirely up to you, would you prefer to rent instead of buying a home? At the risk of sounding obvious, renting should be an alternative to the ultimate goal of home ownership, for when you think hard about it, your monthly rental -when you add a few hundreds- might actually be enough to foot a mortgage. However, it may not always be as easy as that, as the weighty burden of a sizable down payment can cartwheel your plans and leave you settling for less. Then again, why settle for less if there is the faintest possibility of benefiting from various tax benefits available to homeowners.
Federal Tax Deductions
The IRS has been long viewed as the villainous ‘love to hate’ taxman who takes a huge chunk of what you earn to no visible end. So it’s not surprising that most of us simply ‘give to Caesar what belongs to Caesar and not speak a word of it until the following month. However, the IRS makes provision for Federal tax deductions. Federal tax deductions basically allow certain people to reduce their taxable income, thereby reducing their taxes.
There are two kinds of tax deductions standard and itemized deductions, of which our focus will be on the latter. In contrast to the standard tax deduction which is founded on the basis of one’s age and filing status, an itemized deduction entreats you to mention specific details which, once considered, entitle you to better tax deductions than the ‘one-size-fits-all’ standard deduction. For example, if you are paying off student loans, making contributions to charity, recovering from huge financial loss stemming from fraud or theft, and, of course, if you have a mortgage, all these expenses will be deducted from your taxable income.
So property taxes, interest payable on the mortgage, mortgage insurance and other miscellaneous expenses related to your property can be considered and allow you to save a lot of money that can be reserved to make your mortgage more bearable. The standard tax deduction can also be helpful as it allows you to free up extra income and make advance payments on your mortgage, it’s all a matter of preference.
Homestead Exemption
Owner occupied homes -homesteads- qualify for homestead exemption in certain states, and the figure varies likewise. An illustration of how this works in real life would be,for example, if the exemption on a 150 000 home is 50 000, that means the property taxes will be as if the home is worth 100 000. So find out from the local municipality what they have in this regard.
Energy Efficient Homes
With the reality of global warming slowly taking root, the shift by Congress has been to encourage homeowners to make their homes more energy efficient by renewing the long-standing tax credit. Whilst this might not be dressed as a tax benefit, if you can prove home energy efficiency, 500 can be deducted from your tax bill for that alone!
Owning a home is everyone’s dream. Sadly, it is made out to seem like the hardest thing to do, when in reality, it is possible with a little ‘scrapping at the bottom of the barrel’. Taking advantage of Federal tax breaks for homeowners is the smart way to go. Don’t sell yourself short by renting when you can actually own!