Here Are The 5 Tax Benefits Of Buying A House

profile Brett Holzhauer  |  April 10, 2023

Buying a home is likely one of the biggest purchases someone will make in their lifetime. And in 2022, nearly 6 million Americans (including myself) took the plunge into homeownership. It’s an exciting purchase, but can also be a costly one — especially in today’s housing market. However, if you purchased a home before 2023, you likely will have some tax benefits when it comes to filing your tax return in 2023.

So if you’re a homeowner, here are the tax benefits you may qualify for when filing your tax return.

Tax benefits of buying a house

There are typically two ways to file your taxes: take the standard deduction or itemize your deductions. For context, in the 2020 tax year, 87.3% of Americans took the standard deduction according to IRS data.

A licensed tax professional will be able to help you figure out which option is better for you.

Mortgage points deduction

Many people talk about “buying points” when it comes to their mortgage, but what does that mean? There are two different types of points: origination points and discount points. Origination points come from the originator of the mortgage loan, and come from the costs of acquiring the loan. Discount points refer to homebuyers buying down the interest rate of the loan.

These points can be deducted in the tax year that you purchased your home.

For more information on this, see the IRS website or speak with a licensed tax professional.

Mortgage insurance deduction

If you purchased a home with less than a 20% down payment, you likely have private mortgage insurance (PMI). This policy protects the lender in the case that the owner walks away from the home and defaults on their loan.

This insurance policy is typically part of your monthly mortgage payment until you hit 80% loan-to-value on your home.

You can deduct these premiums from your taxable income, depending on your AGI (adjusted gross income) and tax bracket. For example, if you pay $1,500 per year in PMI insurance with an AGI of $95,000 and you’re in the 20% tax bracket — you would take ($1,500 x .2), equaling $300 in tax deductions. However, be sure to sit with a certified tax professional to ensure your specific deduction amount.

Mortgage interest deduction

All mortgages come with an interest rate, which is the amount of profit the bank will make off of your loan. While you will likely pay a significant amount of money over the life of the loan, you will also get a tax deduction for paying this.

According to the IRS, you can deduct the first $750,000 ($375,000 if married filing separately). However, higher limitations ($1 million ($500,000 if married filing separately)) apply if you’re deducting mortgage interest from indebtedness incurred before December 16, 2017.

Home office deduction

Millions of Americans have made the switch to working from home. It’s estimated that over 27 million people work from home, according to the U.S. Census Bureau

However, you can’t take the home office deduction if you’re only a W2 worker — unfortunately. However, if you have a home office that you use for a side hustle like freelance writing, you can deduct a part of that from your taxable income.

Property taxes

Even if you own your home outright (without a mortgage), you still owe property taxes. It may not be a fun bill, but you can at least deduct your property taxes from your taxable income.

Each state, county and city is different, so be sure to research your own tax bill to see how much you can deduct from your annual taxable income.

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