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Mortgage and home equity loan tax savings
Buying a home is expensive, but there are some benefits to owning real estate. One of those benefits is being able to deduct a number of things from your Federal tax return with a home equity loan. We will outline what is and isn’t deductible so that you can start saving money right away.
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Buying a house is one of the most expensive things most people will ever do. The typical $200,000 American house will cost more than half million dollars by the time it’s paid off. That, for most anyone, is a lot of money. But, as some will point out, “The interest on the mortgage is tax deductible!” That is true, but the benefit of that is somewhat debatable. Some people will save a lot from it and others will not, depending on a number of factors. The standard deduction often equals the amount of the mortgage interest, so for many taxpayers the two cancel each other out. There are, however, some other tax benefits to owing a home or taking out a home equity loan.
Here are a few other things you may wish to consider about owning a home:
- Points on your loan are tax deductible. What is a “point?” A point is a term used to describe any one of a number of fees that a lender adds to the cost of the loan. Such fees as an origination fee, which is really just the cost of preparing the loan, are often determined by charging the borrower a certain number of “points”, where one point represents one percent of the loan amount. Other charges that come in the form of points are fees associated with lowering the interest rate, known as “discount points.” These fees are deductible from your Federal tax return.
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- Provided that the loan is less than $100,000, the interest on equity financing is tax deductible. And this is true no matter what you use the money for; it doesn’t have to be used for property repair or a remodeling project. This makes this type of financing a very reasonable way to borrow money compared to a credit card loan, as the deductible interest is effectively a discount on the interest rate.
- Certain costs associated with an office in your house are tax deductible. If you work from home, you may be able to deduct part of the mortgage, utilities or insurance. Years ago, such deductions constituted a “red flag” at the IRS, but no more. Many people make these deductions routinely and they no longer raise eyebrows at the IRS, provided that the deductions are reasonable.
- Changes in Federal capital gains taxes now allow homeowners to sell their houses and keep up to $250,000 tax-free, provided that they have lived in the house for at least two years. That amount doubles to $500,000 for married couples filing jointly. This is a great improvement over the old system, which allowed a once-in-a-lifetime, $125,000 exemption.
While owning a house is certainly more expensive than renting one, there are some definite benefits to having a house and a mortgage. If you have doubts about whether or not a certain expense is tax deductible, consult with either the Internal Revenue Service or a professional tax preparer.
If you have a mortgage with a high interest level, you may wish to ponder a new loan. You may be able to consolidate your debt and lower your financial obligation. Ameriquest Mortgage can make it easier to refinance now.
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