Blog

When people think about buying a home, the mantra Location, Location, Location comes to mind.  But an equally important mantra that should come to mind is Taxes, Taxes, Taxes and Savings, Savings, Saving – which does not depend at all on location, location, location. 

There are numerous tax benefits that the home owner can receive but the average person is not aware of, unless they purchase a home. In fact, these benefits alone can make owning a much more worth while use of your money than paying it out in the form of rent.

Some of the benefits are:

Mortgage Interest Deduction: Home owners can deduct the interest paid on a mortgage from their annual taxes.  For example, if you were to borrow $300,000 with an interest rate of 4.5% to purchase your beautiful new condo in the Bronx, the annual interest of $13,500 could be written off and as it also reduces your taxable income it could have a secondary accounting benefit of putting you into a lower tax bracket.

Closing Cost: Certain closing costs, such as loan origination fees and discount points are tax deductible.  A loan origination fee is a charge by the bank for processing a new loan.  Discount points are considered pre-paid interest by the IRS and are therefore tax deductible. Borrows can reduce the interest rate that the bank is charging by buying points.  One point is equal to 1% of the loan amount.

Property Taxes: In New York State, property taxes are deductible on your primary residence and one vacation home.Property taxes are based upon the assessed value of your home. The more your home is worth, the more you’ll have to pay. Fortunately, property taxes are deductible from your federal income taxes.

Home Equity Loan Interest: Interest paid on home equity loans or lines of credit are tax deductible.  For even more savings you can shift your high interest credit card debts to your home equity loan and pay a much lower interest rate plus benefit from writing off the home equity loan interest on your taxes (you can’t write off credit card interest).  How much are your credit card interest rates? Now compare that to a home equity loan with a 4.5% interest rate and tax the deductions, how’s that for a saving!

Home Office Deductions: If you’re self employed or freelance and work from home, the home office deductions could save you money on your taxes.  The IRS permits you to write off a portion of the expenses (such as electricity, water and internet service) that enable you to conduct business from home.

***

Home is not only a place where you live, its also a business. Its part of the business of running your life. Home ownership definitely has its advantages and one should consult an accountant, tax specialist or mortgage broker to gain a full understanding of what is and is not available or advisable.  As with any financial plan one should entered into it with a full understanding of the do’s and don’t so that your road to financial freedom does not lead you to a path of financial nightmares.

Take care and check back for Home Ownership: The Benefits (part 2)