If you’re considering buying a home, you’ve probably heard about tax breaks associated with home ownership. But what does that mean to the bottom line?
Tax breaks may help you afford a home. Under current IRS rules, you can deduct mortgage related items on your federal income tax return if you itemize deductions and meet other requirements.
Possible deductions include:
• Interest paid on your primary residence
• Property taxes
• Points paid on a loan
• Interest paid on a home equity loan
Tax deductions for homeowners can make home ownership more affordable by lessening your taxable income. Here’s an example:
Let’s assume John wasn’t already itemizing deductions. Now, he buys a home and finances $400,000. John will pay nearly $18,000 in mortgage interest and approximately $4,000 in property taxes the first year.
At tax time, John can now itemize and deduct his home related expenses to lessen his taxable income.
Reducing his taxable income by $25,000 could save John thousands of dollars in taxes.
Please consult a tax advisor for complete details. For more information about the tax benefits of homeownership, see IRS Publication 530, Tax Information for First-Time Homeowners and IRS Publication 936, Home Mortgage Interest Deduction.
Pacific Service CU cannot give financial, tax or legal advice. Please consult your tax advisor for details.
by Hemlata, AVP, Lending