The Tax Benefits of Home Ownership

Home mortgage interest is deductible on your income taxes if you itemize, and homebuyers can deduct the interest on up to one million dollars of home mortgage debt, whether it is used to purchase a first or a second home. The interest can also be deducted on up to $100,000 of home equity debt, even if the money is not used for home improvements. Real estate taxes are deductible as well. The author lists an example where a single person with no children rents a home at a cost of $1,200.00 per month and takes the standard deduction on his income taxes. His adjusted gross income is $128,000, and he has $3,500 in state income tax withheld from his paychecks throughout the year, but doesn’t qualify for any other itemized deductions. That person’s federal income tax liability for 2008 will be approximately $32,000. If that same person purchases a home with a monthly mortgage payment of $1,200, his tax liability is lowered. At the end of the year he will receive a form 1098 from his mortgage company that shows how much of his mortgage payments for the year went to mortgage interest, and he will also pay real estate taxes. That person’s federal income tax liability will be approximately $28,000. The author also gives examples where people save on their taxes by taking out a home equity loan or by purchasing a vacation home. | Read More