Real estate tax deduction should encourage you to buy homes
Real estate tax deduction should encourage you to buy homes
Real estate tax deduction is a policy whereby owning a piece of property like your house gives you many tax advantages. Some of these include:
1. Interest paid on mortgage: The mortgage interest you incur on your house is deductible from your income tax. Joint tax holders can deduct the entire interest amount up to a maximum of $1 million in mortgage liability paid on a first and possibly second house.
2. Fee points: Points connected to a home acquisition mortgage are completely deductible. Usually one to three points are charged on home loans by your mortgage lender. Since each point is 1% of the principal amount, these points can add up to thousands of dollars.
3. Equity loan interest: The interest you pay on a home equity loan (line of credit) is partially deductible. However, there are certain rules imposed by the Internal Revenue Service regarding this policy.
4. Home improvement loan interest: Interest on loan taken to make capital improvements is tax deductible. Such improvements include constructing a fence, driveway, swimming pool, patio, garage, a new roof, landscaping and so on. This policy does not include minor repairs.
5. Home office deduction: Using a part of your house as an exclusive workplace also entitles you to certain deductions on insurance, repairs and depreciation.
6. Selling Costs: You can use this clause to reduce your taxable capital gains when you sell your home. Selling costs include real estate broker’s commissions, title insurance, legal fees, advertising costs, administrative costs, and inspection fees.
7. Capital gains exclusion: If you sell your house that you have occupied for two of the last five years then you need not pay capital gains tax. This benefit has been granted under the Taxpayer Relief Act of 1997. Married taxpayers, who file jointly, can keep up to $500,000 in profit on the sale of a home while single and married taxpayers, who file separately, can keep up to $250,000 apiece tax free.
8. Home moving costs: If you shift your home because your job takes you to another city then you can deduct part of the costs incurred in shifting home. However, the IRS has slapped several limitation clauses on this benefit, and it is not easy to avail.
9. Property Tax: Finally, the real estate tax (property tax) that you pay to your local government is completely deductible from your federal income tax.
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