First time home owners may not realize all the tax breaks that are possible options for them - just by paying a mortgage instead of rent! In fact, there are so many tax breaks available, it seems as if the government should owe us home owners money!
Even old timers who own a home may want to read on - as the government has recently introduced yet one more tax break for all home owners; this newest one is called the Mortgage Forgiveness Debt Relief Act of 2007.
There are already several tax incentives out there for home owners. The capital gains (i.e. profit) that you make on the sale of an asset are usually tax deductible, but in the sale of your home, this has been waived by the Tax Relief Act of 1997.
Before this law came into effect home-owners could claim capital gains exemption only once in their lifetime, no doubt this stems from the 'good ole days' when everyone bought a home and stayed in it until they died!
Now, however in these days of frequent house moves, the government lets you sell your home and make a profit which you can keep! However, if you make an enormous profit, you have to share some with the tax department, but the limit is very generous.
You can keep any profit of up to $250,000 if you are single or $500,000 as a married couple, after that the profit (over and above the original cost etc.,) is taxable.
Mortgage interest is also tax deductible, for a mortgage debt of up to $1 million - that should cover most of us! Also, the Mortgage Forgiveness Debt Relief Act of 2007 allows you to deduct your mortgage insurance interest. Wow! Surely the government owes us home owners money by now?
But wait - there's more! If you (and your spouse if you have one) earn less than $100,000 gross per annum you can also deduct PMI from your tax bill. This is especially helpful for families who bought home with less than a 20% down payment; they can deduct PMI until 2010.
All these tax breaks add up to several bucks and when you add that to the equity that can be made on a home, it's a good deal. On top of everything else the mortgage interest rate is low, low, low - and right now it is a buyer's market (i.e. the price is right).
However, these days it must be agreed that you should plan to buy only if you think you can stay in the home for a few years in order to allow the equity to build up.
Some homeowners who have a federally insured loan may qualify for the deduction of their property taxes on their federal income tax return. Also 'points' that are paid to take out a mortgage are tax deductible up to $1,000.00. (This counts as a tax deduction whether you or the seller paid.)
Come on, are you still reading this? How many more breaks do you want? Get out there and start looking - 80% of all prospective home buyers start on the Internet so just keep clicking!
