The joys of homeownership are many: Your own house is a place to make sweet memories, build a financial nest egg, and whittle down your tax bill.
Wait, what? Yep, it’s true: Your home can save you a bundle on April 15.
We’ve rounded up every last way to take advantage of the tax benefits of owning a home. Read on for the full rundown just to make sure you aren’t missing any, then pat yourself on the back for all the moolah you’ll save!
Tax write-off No. 1: Your mortgage interest
This is the biggie tax benefit of owning a home: the ability to deduct the mortgage interest you pay over the course of a year. And the more recent your mortgage, the greater your tax savings.
“The way mortgage payments are amortized, the first payments are almost all interest—so that’s why the mortgage interest deduction is worth the most in the first few years of the loan,” says Wendy Connick, owner of Connick Financial Solutions.
Here’s how this deduction looks for a married couple in the 28% tax bracket (that means a joint annual income between $151,201 and $230,450) who bought a home with a $300,000, 30-year mortgage at a 4% interest rate. They will pay $11,904 in mortgage interest their first year. Once you add in the other itemized federal deductions below, these homeowners can expect to save at least $3,333 in taxes during their initial year of ownership.
Tax write-off No. 2: Your property taxes
Generally, your property taxes are deductible on your tax return, says Brian Ashcraft, director of compliance at Liberty Tax Service. And that could be a hefty savings. According to the U.S. Census Bureau, the average household property tax is $2,127. If you have a mortgage, your taxes are built into your monthly payment.
You can also pay property taxes early and write off the entire expense if you’re staring down a large tax bill for any given year. Just note that you must claim the deduction in the year you wrote the check. For example, if you paid your 2017 property tax in 2016, claim that tax benefit on your 2016 return. Here’s more info on how to calculate property taxes.
Tax write-off No. 3: Private mortgage insurance
If you put less than 20% down on your home, odds are you’re paying private mortgage insurance, or PMI, which costs from 0.3% to 1.15% of your home loan. But Uncle Sam’s willing to give you a tax break here by allowing you to deduct this amount from your income, too.
How much you’ll save: If you make $100,000 and put down 5% on a $200,000 house, you’ll pay about $1,500 in annual PMI premiums and thus cut taxable income by $1,500.
Note: The deduction is due to expire this year, says Connick. “Unless Congress renews it, the deduction will not be available for the 2017 tax year.”
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