When you buy a home, you are also buying a lot of different tax breaks. Make sure that you are taking advantage of them.
The associated tax breaks go a long way to make homeownership more affordable. One of the largest breaks you will receive is the deduction for mortgage interest paid. You can write off the interest on up to $1 million in mortgage used to buy or improve your first or second home.
This interest deduction can really save you a lot of money. In the early years of owning your home, most of your payments go towards interest. The older your mortgage, the less your deduction will be.
You can also write of any points ou paid to buy the home, even if the seller paid them for you. You can also deduct any points paid when you refinance, but you must spread the deduction off over the life of the loan. You simply divide the point amount by the length of the mortgage and deduct that amount each year. When you sell or refinance the home, you can then deduct the remainding balance in the year that you sell or refinance.
You can also write off your property taxes paid.
Homeowners are allowed to deduct the interest on up to $100,000 in home-equity debt each year. You can use the equity for anything you wish, from a car loan to college tuition.
When you sell your home, you can use the closing costs paid on it and the cost of any major home improvements to increase your cost basis and reduce the tax bill you may be subject to. Most people aren't subject to any income taxes upon the sell of their home. To avoid the tax, you must live in the house for at least two out of the past five years and make less than $250,000 ($500,000 if jointly filed) in home sale profits.