Learn What You Can Deduct from Your Taxes After Buying a Home
To buy or to continue to rent Austin real estate is an important decision. In fact, for most people the purchase of a home is the biggest purchase they will make during the course of their lifetime. If you are looking at homes in Austin, Texas to rent or buy there are a number of factors that you should take into consideration before making a final decision. One factor that frequently sways people to take the plunge and buy a home is the tax consequences of purchasing versus renting. In short, there are no tax benefits to renting a home whereas the tax advantages to purchasing a home are numerous.
First, some basic information is helpful. Many new homeowners have been filing their tax return using the standard deduction up to this point. If you purchase a home and plan to take advantage of the tax deductions offered to homeowners you will need to itemize your deductions going forward by filing a 1040 with Schedule A attached. The tax breaks you receive as the owner of Austin real estate can be divided into two categories – one time deductions and ongoing deductions.
When you purchase a home there are a seemingly endless number of costs, fees, and expenses that go along with the purchase. Many of these expenses are tax-deductible, such as:
· Points – points are paid to the lender to reduce the interest rate. The entire amount you paid in points may be deductible in the year you paid them if you meet certain criteria. Points paid to refinance a mortgage can also be deducted; however, the amount is usually required to be deducted over the life of the loan.
· Mortgage interest paid at settlement – typically, a buyer pays some mortgage interest at settlement. The amount paid should be listed on the settlement or closing statement and is probably tax-deductible if you itemize your deductions.
· Real estate taxes paid at closing – real estate taxes are usually divided so that the seller pays the portion for the time period he owned the home and the buyer pays for the months she is in possession of the home for that year. Your portion can be deducted on your 1040.
· Energy tax credit – if you make energy saving improvements to your home you may be entitled to a one-time credit of up to $500 in the year you make the improvements.
· Mortgage interest – a significant portion of your monthly mortgage payment is interest. That interest is deductible each year up to a certain limit.
· Mortgage insurance – the insurance premiums you pay each month to a qualified mortgage insurance provider are deductible.
· Mortgage Interest Credit – this credit helps low income buyers afford home ownership. You may be eligible for the credit if you were issued a qualified Mortgage Credit Certificate (MCC) from your state or local government.
· Real estate taxes – taxes will be paid each year on the property. The amount you pay is deductible.
When you are looking at home in Austin, keep in mind that another significant financial advantage to buying a home is that a substantial amount of the profit you can potentially make on the home if it appreciates in value over the years. The profit you earn from a home sale in the future may be tax-free. Although capital gains taxes are levied when a taxpayer realizes a gain on the sale of an asset (such as a home), a single homeowner can be exempt up to $250,000 in profit from a sale and a married couple up to $500,000 in profit from the sale.
To ensure that you take advantage of all the various deductions, credits, and tax benefits of owning a home be sure to work closely with your Austin real estate professional throughout the purchase process and be diligent in keeping your records/receipts.