Tax Benefits of Home Ownership
Do the financial benefits of home ownership make "cents"? We think so, let's talk about why.
You may have heard that in this market it's a smarter move to buy than rent, but when you plug in the figures into a mortgage calculator you're not so sure. Let's consider taking your calculations one step further.
Mortgage tax deduction benefits: The tax code allows homeowners to deduct their mortgage interest from their tax obligations. In the first few years of owning your home, interest can be the largest component of your mortgage payment. Therefore, for many homeowners this can be a significant deduction!
First year homeowner: The year you buy your home you are able to claim some loan origination related expenses.
Property tax is deductible: If your home purchase is your primary residence or vacation home, your property tax is fully deductible. Here in San Diego, California, property tax is approximately 1.2% of your purchase price.
Home equity loan/line of credit? Interest paid on your home equity loan is also eligible for a tax deduction.
So let's break it down.
In your first year as a homeowner, say your:
income was $85,000
property tax was $5,700
paid $7,000 in mortgage interest.
Your real estate deductions alone add up to $12,700 - this doesn't include any deductions related to closing costs on your loan if applicable.
$85,000 - $12,700 = $72,300
Depending on your tax bracket, you will now pay taxes on $72,300 vs $85,000!
Voila :)
If you're considering buying vs renting, or have additional questions to ensure your investment is working for you, reach me directly at 619.400.9567
**Please note, I am NOT a tax accountant. The information contained above is for overview purposes only and should not be taken as tax advice. Please consult with your accountant regarding your specific financial circumstances.
