Buying a residential property will likely take a considerable hit on your wallet—but luckily, there are a few financial advantages available to homeowners. Depending on certain factors like your finances, mortgage and property, you may be entitled to receive certain tax deductions that could save you significant funds. Here are a few common tax benefits that you can take advantage of.
The Most Lucrative Tax Benefits when Owning a Home
Mortgage
For the vast majority of homeowners, a mortgage loan is an absolute necessity when purchasing a residential property. It might seem like a hefty expense—but did you also know there are several tax benefits available to those with mortgages?
Interest
A major advantage of having a mortgage interest is the ability to deduct it from your taxes. This can be especially valuable during the early years of your loan when most of your payments are applied to interest rather than the principal.
Points
Homeowners often pay mortgage points in order to receive a reduced interest rate on their loan. Essentially, points are an upfront fee that’s paid to the lender at signing. One mortgage point is equivalent to 1% of your total loan value. They’re also fully tax deductible for the year when they were purchased.
Property Taxes
As a new homeowner, you will eventually have to start paying your fair share of property taxes on your residence.
However, in local states like New York, New Jersey and Connecticut, taxes can be extremely high. If you are a homeowner in one of these states who itemizes deductions, you might be able to deduct a significant portion of your property taxes.
When to Claim Deductions
You have to claim the deduction in the year that a payment is actually made. Since property taxes are usually billed quarterly, you might have to pay your first quarter taxes for one year in December of the year before.
This means that you would need to claim that deduction for the previous year since that’s when you actually completed the transaction.
Eco-Efficiency
These days, solar power seems to be one of the most widely-used practices in eco-friendly, energy-efficiency. While these improvements may seem expensive—they will actually save you money down the line by slashing your energy bill. But that’s not all!
When you add improvements like solar panels, solar-powered water heaters, wind turbines and geothermal heat pumps, you will become eligible to receive certain tax benefits for your dedication to energy-efficiency.
In most states, you will receive up to $500 worth of tax credits, which are more valuable than deductions since they decreases your tax bill dollar-for-dollar.
If you are looking to cash in on tax benefits for your residential property, make sure you pay close attention to this handy guide!
