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.

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Pacific Service CU cannot give financial, tax or legal advice.  Please consult your tax advisor for details.

by Hemlata, AVP, Lending