Buying a home? Uncle Sam wants you
Buying a home has several financial advantages, especially when it comes to filing your personal income taxes each year. The IRS encourages home ownership by offering a multitude of deductions to those purchasing a house - whether it's a single-family home, mobile home, condominium, town house, or cooperative dwelling.
The key to taking full advantage of tax deductions related to the purchase of your home is to keep good records of your home related expenses and get a good accountant. When you buy a home, your taxes will likely get more complicated, so having an accountant who has experience with home ownership deductions is a great idea. Here are some of the tax breaks you can take advantage of:
Get your insurance premiums back
According to MSN, if you purchased your home between January 1, 2007 and December 31, 2009 you may be able to deduct your insurance-premium payments. But don't think for a minute that you can deduct the full amount for the last several years - there are some limits. The deduction is reduced for taxpayers with adjusted gross incomes exceeding $100k and it is completely eliminated for taxpayers with adjusted gross incomes of $110,000 and more.
Claim your property taxes on your income tax return
The other major tax advantage that comes with owning a home is the property tax deduction. That's right - the monthly amount placed in escrow for your property taxes can be used as a deduction during tax season. The amount that you pay in property tax can be found on the annual statement from your mortgage lender.
Refinancing could save you money at tax time
Bankrate tells refinancing homeowners they can deduct some costs associated with their new home loan. If you refinanced your mortgage and used the money for home improvements and upgrades, then the IRS offers a tax break on the portion of the points directly related to the new money (i.e. the money from the refinancing portion of the loan).
Deduct the capital gains when you sell your home
The Tax Policy Center says that homeowners can deduct the capital gains from the sale of a home up to a limit of $250,000 if you're single and $500,000 if you are in a couple and file a joint tax return with your spouse.
As you can see, buying a home does have it's financial advantages. Still, run the numbers to make sure that they are successfully driving the picture. In previous years during the economic downturn, many people were disappointed when the "American Dream" didn't pan out well for them financially. But with proper financial planning, the allowed tax breaks can work in your favor.