What type of deductions can I get now that I own a Denver home?Since tax season is upon us, this question will come up more and more often in our office. And while we aren't tax professionals, can't give tax advice and will always recommend you speak with a CPA about tax matters, there are some pretty common tax deductions available when you own your own home that we can point out.
I always tell buyers who are wavering between buying versus renting that just comparing your monthly mortgage verse monthly rent is not a fair comparison, mostly because of the tax benefits of owning. Below are some common deductions that I found in an article from Inman News. Again, make sure to consult a professional tax consultant when it comes to taxes and hopefully these will help save you some money this tax year.
The tax benefits of buying a home include:
Home mortgage interest deduction: The interest paid on a mortgage or mortgages of up to $1 million for a principal residence and/or second home is deductible as an itemized deduction. In the early years of a home loan most of the payments consist of interest, so this deduction is particularly substantial during the first years of homeownership.
Depending on the state a buyer lives in and his or her tax bracket, this deduction can reduce the cost of borrowing by one-third or more.
Home equity loan deduction: Homeowners can borrow up to $100,000 against the equity in their home and deduct the interest as an itemized deduction. The money can be used for any purpose, such as paying off high-interest credit card debt. In contract, the interest on credit card debt is not deductible.
Property tax deduction: Homeowners also get to deduct from their federal income taxes the state and local property taxes they pay on their home. This is another itemized deduction that renters don't get.
Deductible homebuying expenses: Various closing costs ordinarily involved in a home purchase are also deductible as itemized deductions, including loan origination fees (points), prorated interest on a new loan, and prorated property taxes paid at settlement.
$250,000/$500,000 home-sale exclusion: Perhaps the greatest tax benefit of owning a home comes when a person sells it at a profit. Homeowners who lived in their home for two of the prior five years prior to its sale need pay no income tax on a substantial amount of their profit -- $250,000 for single homeowners and $500,000 for married homeowners who file jointly. This exclusion can be used once every 24 months.
14 days of free rental income: Another little known tax benefit of owning a home is that the owner can rent it out for up to 14 days during the year and pay no tax at all on the rental income. In contrast, a renter who sublets his or her rental must pay income tax on all the rental income he or she earns.
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