Are you looking to buy a home for the first time? If so, you probably understand how difficult this market is. The truth is that there are many benefits to buying, even in this tough market. Most buyers enter the market to take advantage of low rates and begin building equity, but there are many tax benefits owning a home.
Despite the difficult path ahead, it’s still an attractive time to buy a home. As the Federal Reserve raises interest rates to curb inflation, housing will become less affordable. On top of that, Redfin chief economist Daryl Fairweather says that increasing rent prices make buying a better option. “At least when you buy, you get to lock in your monthly mortgage payments.”
The truth is that there are many benefits to buying, even in this tough market. Most buyers enter the market to take advantage of low rates and begin building equity, but there are many tax benefits to owning a home as well. If you’re thinking about buying soon, it’s crucial to be aware of these benefits:
1. Mortgage interest. Five years after owning your home, you can deduct interest on loans up to $1 million, and before then, you can deduct on loans up to $750,000. However, if
you’re a first-time buyer, it’s unlikely you’ll hit either cap. This is important because it’s another way your mortgage payment will be cheaper than renting.
2. Property taxes. If you’re married, you can deduct up to $10,000 in property taxes no matter how much you actually owe. Just make sure the tax benefit from doing this is worth more than the standard deduction.
3. Private mortgage insurance. The Mortgage Insurance Tax Deduction Act of 2021 passed, which reinstated deductions and credits for mortgage. Once again, make sure deducting your insurance interest instead of taking the standard deduction makes sense for you.
4. Energy-efficient upgrades. If you have solar electric or solar water-heating equipment, you can receive a tax credit.
5. A home office. More and more people are working from home, and more houses have offices as a result. If you are self-employed and working from home, you can deduct $5
for every square foot of your office up to 300 square feet. The bad news is that if you are a W-2 employee, you can’t take advantage of this credit.
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