Tax Benefits of Home Ownership
No one doubts that purchasing a house is a big deal. The number of decimal points on all Florida home loans is difficult to fathom for many borrowers.
However, a series of tax benefits are designed to help your financial cause. While this is a major investment, the government has taken steps to make it very much worth your while. Let’s take a look at a few examples of how. (Note: Because tax rules vary based on income and other factors, you should consult an accountant or financial advisor for advice on your particular tax situation.)
Mortgage interest
One of the biggest incentives to owning a home is that the interest you pay on your Florida home mortgage is tax-deductible, up to a limit of $1 million. This deduction, like most other tax breaks for homeowners, applies to ANY sort of home. This even includes a second home, as long as you spend a certain amount of time there: either 14 days each year, or 10 percent as much time as it’s rented.
Additionally, you can deduct the interest on up to $100,000 of other debt that uses your home as security - for example, a Florida home equity loan. However, the amount you can deduct may be limited if the money you borrow raises your debt above the home’s actual market value. This can sometimes happen when a lender extends you a loan based on more than the value of the property.
Wait, there’s more!
You can also deduct any amount you pay for points. In most cases, the points on a Florida mortgage to buy or build your principal home can be deducted fully in the first year. However, if you refinance, take a home equity loan, or a loan secured by a second home, the points must be deducted over the life of the new loan.
Tax-free profits
Let’s say you sell your home for a profit (well done!). The law allows you to exclude from taxes up to $250,000 in profit from this sale - $500,000 for a couple who file jointly. This exclusion also covers the sale of a parcel of land adjacent to your house, unless it’s used for business.
There are some stipulations, however. The home must be your principal residence, and you must have lived there for at least two of the previous five years. You can only claim the exemption once every two years.
Property taxes
You can claim property taxes you pay as an income tax deduction. This applies to both your principal home and any others you may own. Any money held in escrow to pay future taxes, however, is not deductible.
Moving expenses
The government allows you to write off many of your moving costs when you buy a new home if it’s at least 50 miles closer to your job than your old home. To qualify, you must continue to work full-time in the general 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. However, you must also work full-time near the new location for 78 weeks during the next 24 months.
As mentioned earlier, speak with a tax consultant if you have any questions. Deductions vary based on a number of factors, but the overall point remains the same: Using a Florida mortgage loan to purchase a house provides you with an assortment of fiscal benefits.
