Tax season is just around the corner and yes, real estate taxes are deductible. Getting tax advice on the benefits of owning a home will ease the stress of the season. One of the benefits of owning your home is offsetting your state and federal tax liabilities. Professional tax advisors stay on top of the approved real estate tax deductions and meeting with one may keep more cash in your pocket. These professionals can help identify the year-end tax deductible options that work best for you.
Closing Costs May Be Itemized Deductions
Closing costs can range between two to five percent based on the cost of the home. In some cases, the amount is larger than the standard itemized tax deduction. It’s not always a simple calculation when filing taxes, which makes it worth the effort to get some tax advice on the IRS ruling for deducting real estate closing costs. Your tax advisor can verify whether you qualify for a full or partial deduction.
Mortgage Interest Is a Deduction
Tax deductions have changed over the years. Two sustainable deductible provisions are the year's mortgage interest and the private mortgage insurance payments (PMI). PMI is a requirement for home buyers with a down payment of less than 20 percent of the home’s borrowed loan.
The Long and Short of Mortgage Points Deduction
New homeowners purchasing a primary home will benefit from this deduction. Typically, new homeowners pay a mortgage fee or what the industry calls mortgage points. It's an exchange process for a longer term and a lower interest rate. Financial institutions use one percent of the loan amount to determine the points. Large mortgage loans typically generate multiple mortgage points. The points are deducted for new homeowners. This tax deduction benefit also extends to secondary homes. The difference is the deduction is spread over the life of the loan.
Home Improvements Can Improve Tax Deductions
During the last several years, home improvements have become popular for growing families. Home improvements and cost-saving designs using green energy are offering substantial tax credits. If you borrow money for the purpose of making home improvements, the loan’s interest is fully deductible. It’s a great method to offset the cost of increasing your home’s equity. At the same time, it helps to reduce your tax liability. According to the IRS rulings, the improvements are not for neglected repairs. Improvements include finishing the basement, building an addition or remodeling the kitchen or bathrooms.
Real Estate Property Taxes
Property taxes are attached to the property purchased. They are payable in annual or semi-annual increments as a tax bill. The tax amount is determined by the municipal office within the residing County. The tax rate does vary depending on the property's size, location and marketable value. Unfortunately, the tax rate is not optional, but it is deductible.
Ultimately, the goal for all homeowners is to minimize the amount of your tax liability. It’s done by planning ahead, learning about the allowable deductions, and filing on time. As a result, you get to keep more of the money you’ve worked hard to earn by investing it back into your home. The best tax advice is to meet with a professional advisor prior to tax season. As a homeowner, these tax benefits are advantages of buying a home.
Iris M. writes blog content for real estate; research, region and community information for the purpose of providing information to the reader, helping them with decisions when selecting a home. She writes content on a variety of subjects, pertaining to client specifics, industry related, research and informative studies, including "how to" for mass market and social media.