Tax Benefits to Owning a Home

Buying a home can not only be a big investment it can also be the wisest, due to a number of tax advantages. The government has implemented tax breaks to encourage home ownership. The benefits can help reduce the cost of buying and owning a home. It may also leave you with more money when it's time to sell. You should consult a tax accountant or a financial advisor for your particular tax situation.

Mortgage interest - The biggest incentive to owning a home is that the mortgage interest you pay is tax deductible up to 1 million dollars. This applies to any kind of home, such as a second home, as long as you spend about 10% of the year there. You can also deduct the interest up to 100k of other debt like a home equity loan. You can deduct the amount you pay for points to reduce the interest rate of your mortgage or other loans linked to your home. If you refinance, take a second loan or home equity loan; the points must be deducted over the life of the new loan.

Tax Free Profits - You don't pay taxes on the profit you make when you sell your home. This is yet another advantage to home ownership. You can exclude from taxes up to 250k in profit from the sale of your home, 500k for a couple who file jointly. But there are stipulations. The home must be your primary residence, and you or your spouse must have lived there for at least 2 of the previous 5 years. You can only claim this exemption once every 2 years. You can claim that a partial exemption of the sale was due to a change in your place of employment, for health reasons, or due to other unforeseen circumstances.

Property Tax - you can claim the property taxes you pay as an income tax deduction. This applies to your principal home and any others you many own.

Moving Expenses - You can write off many of your moving costs when you buy a new home that is at least 50 miles closer to your job than your previous home. You have to continue to work full time in the same area of your job for 39 weeks during the following year. If you're self-employed and work in your home, any move of 50 miles or more will make your moving expenses deductible. You must also work full time near the new location for 78 weeks during the next 24 months.

Because tax rules vary based on income and other factors, be sure to consult with your accountant or financial advisor about your situation.

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