Calculate Your Home Ownership Tax Benefits

Buying a home can save you 10s of thousands of dollars in tax payments.
Use this calculator to find out how much your deductions are.

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Make The Most Of Your Money With Mortgage Interest Tax Deductions

1040 form.

Do you ever get the feeling that other people get all the best deals, the most tax deductions and the biggest breaks?

That's not true anymore. Knowledge is the great equalizer, and given the best advice, you too can cash in on some very important tax breaks for homeowners.

It's easy to make the most of your mortgage if you know how to play the long-term loan game, so why not make your money work for you, instead of the other way around?

Now you can! You don't need to be a financial genius or a millionaire to take advantage of great mortgage interest tax deductions; you just need to do a little homework and remember that unused tax deduction dollars are like money thrown out the window.

What Counts As Mortgage Interest?

Basically, any interest you pay on a loan secured by your main home or secondary home is considered mortgage interest. This includes the first or second mortgage on your home, a line of credit, or a home equity loan.

However, loans that are not based on using your home as collateral are considered unsecured. Uncle Sam calls these personal loans, and you usually can't deduct the interest incurred. That means you get no tax break on car loans; neither can you claim mortgage interest deductions on your third or fourth home.

What Counts As A Home?

In this department, the taxman is quite generous. You don't need to own a traditional house with a white picket fence to qualify for these tax breaks.

Your home can also be a condominium, RV, boat or mobile home. In fact, it can be any property that has its own kitchen and toilet facilities. However, if you're currently living out of your 1976 Ford Pinto, you don't qualify — at all! For example, if you have a $300,000 first mortgage on your home, and a 6.5% interest rate over 30 years, your homeowner tax credits will range from almost $21,000 for the first year down to about $900 for your last year. The credit diminishes as you slowly pay down the interest, provided you make the payments on time.

You can figure it all out yourself with the help of an online mortgage interest deductions calculator, as shown below. This is a great tool to use when you want to plan your financial future, and also a great way to double check the figures your tax accountant comes up with.

savings example.

Tax Deductions for Home Improvement and Major Repairs

There is even more good news for homeowners: you can deduct any monies you spent on major renovations or repairs to your home, although this loophole doesn't come into play until you sell your house, or the value of your house rises substantially.

Grouting Kitchen.

Still, the money you invest in major home improvements like solar energy conversion or wall-to-wall carpeting might help you avoid capital gains tax in the future, so be sure to keep receipts and records of any repairs or renovations you do to your home.

The IRS has fairly specific guidelines concerning deductions for home improvements, insisting that these deductible renovations must add significantly to the value of your house, prolong the life of your home, or adapt your home to new uses. You can expect tax breaks if you do any of the following:

  • Add a room, a garage or a porch
  • Upgrade a roof or water heater
  • Install central air conditioning or heating system
  • Upgrade the plumbing or electrical wiring
  • Make your home completely handicap-accessible

Other major repairs may fall into this category, but the majority of home repairs are too minor to be counted by the IRS. You can't claim these deductions for spackling a hole in your wall or planting a shrub near your front door.

Closing Costs and Point Deduction

Closing costs are a home buyer's costs that must be paid in cash on the closing date. They typically include appraisal fees, inspection fees, points on the mortgage, credit reports, title insurance, taxes and attorney's fees, just to name a few.

Mortgage points are a type of pre-paid interest, and each point is equal to 1% of the purchase price of your home. As a buyer, you may be offered anywhere from zero to three of these discount points. Please note that these mortgage points are tax deductible, as long as you itemize them on your Schedule A tax form.

Should you opt for a no-points mortgage? You should if you intend to own the house for 5 years or less. You'll pay no points at closing, which will save you about $1,500, but be prepared for the higher interest rate.

Tax Deductions When Selling Your Home

For many homeowners, the two happiest days of their lives are the day they buy their dream home – and the day they sell it. As a homeowner, you get some additional tax write-offs associated with selling your house.

You can deduct the commission you paid to your real estate agent, and any fees you paid at closing. This lowers the sale price and your capital gains tax.

"Capital gains" is just a fancy name for the profit you make when you buy and sell stuff, and in the U.S. any individual or corporation that realizes a profit from selling off an asset must pay taxes on it. As you can see, there is a tax on just about everything associated with home ownership, and a different name for each tax.

What Is A Capital Gains Exemption?

A capital gains exemption is a blessing for homeowners because it excludes the profit you gained from the sale of your principal residence. There is a ceiling on the capital gains exemption for homeowners of $500,000 for married couples and $250,000 for singles.

The only stipulation is that you've used the home as your main residence for two out of the past five years, and you haven't claimed a similar capital gains exemption in the past two years.

One of the best things about owning a home is the tax breaks, so don't miss out.

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