Purchasing a home is an enormous investment. While this important purchase may require a substantial financial sacrifice, it also comes with big incentives, including financial benefits around tax season.
Luxury Living Chicago Realty wants to help you understand and potentially take advantage of the tax perks involved in house ownership.
How Taxes Work
For every American, taxes are an inevitable part of adulting. Every year, individuals, businesses, and organizations have to pay earned money back to the government to fund various operations, from road maintenance to the construction of new buildings.
While you can’t avoid paying taxes, tax deductions may help reduce your final payment back to the IRS.
So what exactly is a tax deduction? Essentially, it’s an expense that someone can write off or subtract from their gross income. Deductions help reduce a person’s taxable income so that they can pocket more of their paycheck.
As a taxpayer, you want to learn what tax deductions you are eligible for so that you can maximize your net income.
Tax Breaks for Owning a Home
Buying a home is a great way to reduce your final taxes because the IRS automatically qualifies homeowners for various tax breaks. This is one of the ways that the government has promoted Americans to purchase homes.
While homeowners are eligible for standard IRS deductions, you may potentially qualify for even bigger tax breaks if you itemize your deductions. However, itemizing your deductions only makes sense if your individual deductions combined exceed the standard IRS deductions.
The IRS allows homeowners to receive the following deductions automatically:
$24,800 for married couples filing jointly
$12,400 for single filers and married individuals filing separately.
$18,650 for heads of households.
To determine whether or not it’s worth itemizing your deductions, first add up all qualifying homeowner deductions and additional tax deductions that you qualify for. Then, if the total exceeds the standard IRS deduction, go ahead and itemize your deductions.
So what expenses fall under homeowner deductions?
- Mortgage interest
- Interest on Home Equity Loans
- Discount points
- Property taxes
- Home office expenses
- Medically necessary home improvements
Additionally, if a person chooses to rent their home out, they do not owe taxes on the earned rental income from their own homes. This is one of the reasons that homeownership makes such an attractive investment.
If you are already in the market for a home, hopefully the tax benefits of homeownership provide another incentive to buy.
For help finding the perfect property and any additional questions related to homeownership, connect with one of our licensed team members today.
And don’t forget that the extended tax deadline is quickly approaching. Be sure to file by May 17th!