What are the income tax advantages that come with owning a home?

Question

My husband and I just closed on our house in September and I've been hearing all this stuff about how owning a home gives you a break on income taxes. We had rented up until then, claimed 0 allowances, and still ended up getting hardly any refund or actually paying. Homeowner friends of mine were getting thousands back and were in the same situation as us (no children, claiming 0). Can someone tell me what kind of credit we get for owning property? A Tax Professional's opinion would be GREAT!

Answer 1

The only break that homeownership gives in Federal Taxes is that the Interest on the Mortgage payments are tax deductible.

Most people take the standard deduction on the 1040, and for most people that is the best way to go. Homeowners can use itemized dedications and deduct all of their Interest on their Mortgage Payments on the 1040 as an itemized deduction.

So the savings on your Federal Income Tax is the value of all the Interest on the Mortgage payments up to the amount of taxes that you have paid.

Since you can exceed the standard deduction with your Mortgage Interest that opens the door to other deductions that you can itemize, like a portion of your medical expenses and gifts to charity (up to 30% of your income). Normally these other deductions do not match the standard deduction so they cannot be taken, you however can use them.

Go to this page: http://www.unclefed.com/Tax-Forms/index.html
and download the IRS Tax Form 1040 (it is in PDF format)
on line 40 you will check the box and use Schedule A to itemize your tax deductions.
Go to this site: http://search.atomz.com/search/?sp-q=Schedule+A&sp-k=2005+Tax+Forms&sp-k=2006+Tax+Forms&sp-x=title&sp-x=keys&sp-a=sp06061100&sp-f=iso-8859-1
To find Schedule A (pdf format)
Line 6 will let you deduct Real Estate Taxes on nonbusiness property.
Lines 10 & 11 will be where you can deduct your Mortgage Interest "Enter on line 10 mortgage interest and points reported to you on Form 1098 under your Social Security Number (SSN)"
The bank that you have mortgaged with should provide you with the Form 1098; it is standard practice for most lenders.

If you plan on filing a joint return they you should have no problems, however if you plan on filing separately then you will need to check with the instructions to separate the interest.

The rules for State Income Tax vary from state to state, and you will still have to pay local property tax; that is not tax deductible.

Answer 2

You can only claim mortgage interest, the points paid and property taxes, this will be on Schedule A (Itemized deductions)but all these expenses including medical, prescriptions, charitable contributions employee business expenses, state withholding taxes, need to exceed more than the standard deduction ($10,300).
Also, you might want to take into consideration on how much money is being withheld from your paychecks. Maybe not enough is taken out and that's why you're not getting a big refund at the end of the year.

Answer 3

Don't be surprised if the house doesn't effect your taxes much for 2006 as you closed so late in the year. It can't hurt to try an run the numbers to itemize but it may turn out similar to last year.

Partial list of itemized deductions:
1) Medical Expenses (in excess of 7.5% of your income)
2) State Income Taxes
3) Property Taxes (Real and Personal)
4) Mortgage Interest and Points
5) Charitable Contributions
6) Unreimbursed Work Related Expenses

For 90+% of the people who itemize, the mortgage interest is largest component of their deductions. Like I state before, 2006 may not change much but you should have some large deductions for 2007 and forward.

Answer 4

Too many human beings don't understand that the earnings tax decrease or credit they are going to acquire won't conceal the greater advantageous value on each thing simply by all the different taxes Obama is enforcing. a million) Taxes on capital features for domicile revenues, 28% - we could see, in case you're making a earnings of in simple terms $25,000 on your place, you will pay $7,000 in taxes - how plenty is the tax credit? 2) "eliminating the loopholes interior the corporate tax code" (our company tax is 40%, in simple terms in the back of the utmost Japan... to grant you an occasion Germany is approximately 28%, eire is 12%), will make each thing greater costly. what is going to a 5% or possibly a 2% value enhance on each thing you purchase do to you? those taxes will make the poor poorer and the wealthy poorer.

Answer 5

Deductible mortgage interest. Make a home office in one room, spend some time "consulting". Home office deduction. When ever you improve the home, take the depreciation on the replaced item(s). Not a pro, but have buddies in the same situation. Am working on getting a place of my own so I too can hop on the gravy train.

Answer 6

I'm not a professional but we get money because we rent out the 1st floor and took expenses on wear and tear and renovation work. If you have a mortgage you can claim a deductible on that too. Check out this great site. Bankrate.com link provided

Answer 7

you can take a deduction for the interest and points paid on your mortgage. you can also take a deduction for property taxes.