There are several benefits to buying a home, including owning a valuable investment that will build equity over time, having the freedom to decorate, make noise, and own a pet if you want to. Another major benefit to owning your own property is that it allows you to be eligible for tax benefits. If you are interested in buying a home in Knoxville, Maryville, Lenoir City, Oak Ridge, or Gatlinburg, Tennessee, and have questions about how owning a home can impact your tax situation, Foundation Mortgage can help.
Possible Homeowner Tax Breaks Explained
If you are a homeowner, you may be eligible for certain tax breaks, typically in the form of tax deductions and tax credits. Tax deductions are costs that the IRS subtracts from your taxable income that result in you indirectly paying less for your tax bill, and the government offers these deductions in order to promote home ownership. Tax credits are different from deductions in that actual dollar amounts are subtracted from your tax bill directly. A standard deduction will lower a homeowner’s tax bill by a fixed amount, while an itemized deduction is made up of a list of eligible expenses. If a homeowner opts for a standard deduction, the amount will depend on your filing status, (whether you are single, married/filing jointly, or the head of household) and is a fixed amount for each category. Itemized deductions, on the other hand, are calculated by adding all appropriate deductions and subtracting them from your taxable income amount, which will differ from person to person. If you are a homeowner, and the overall expense of your mortgage, mortgage insurance premiums, and real estate taxes are more than your standard deduction, you could benefit from an itemized deduction.
What Can You Itemize When Owning A Home?
If you choose to itemize deductions on your tax return, you can list many items associated with your home. Common itemized deductions can include:
- Mortgage interest – Part of your monthly mortgage payment goes towards interest on the loan, and you are able to deduct interest you made payments on up to a certain point, depending on when you took out the mortgage.
- Home equity loan interest – Interest can be deducted if you spent money borrowed from a home equity loan to make improvements to your home.
- Discount points – You might be able to deduct discount points you paid when the mortgage closed.
- Home office discount – If you are self-employed and work from home, you may be able to get a tax deduction.
- Energy deduction – If you make energy efficient changes to your home, you could qualify for deductions.
- First-time homebuyer – You also may be eligible for tax deductions if you bought a home for the first time.
If you want to know more about tax deductions as a homeowner in Knoxville, Maryville, Lenoir City, Gatlinburg, or Oak Ridge, Tennessee, contact Foundation Mortgage for a consultation.