There are many reasons for wanting to have a home of your own like a place to raise your family, share with friends and feel safe and secure. While investment opportunities rank high for most people based on the fact that homeowners’ net worth is over forty times higher than that of renters, so do the tax benefits that reduce tax liability.
Check out these wonderful savings!
- Taxpayers who have owned and used a home for at least two out of the last five years, can exclude a maximum of $250,000 of gain as a single taxpayer and up to $500,000 of gain for married taxpayers filing jointly.
- If the gain on a principal residence exceeds the allowed exclusion, the balance is taxed at the lower long-term capital gains rate rather than the marginal tax rate of the homeowner.
- Homeowners can deduct the interest paid on up to $1,000,000 of acquisition debt used to buy, build or improve their first or second home. They may also deduct the interest on up to $100,000 over acquisition debt that is a recorded lien on their first or second home.
- IRS will allow taxpayers to decide each year whether to take the higher of the itemized deductions or the standard deduction.
- Points paid on new loans for home purchases are considered interest and can be deducted in the year paid. On the other hand, points paid for refinancing a home must be amortized over the life of the mortgage.
For more information, talk to your tax professional and see IRS publication 523 and IRS Publication 936.