Tax Advantages to Homeownership You Should Know

Tax Advantages to Homeownership You Should Know

  • Jerri Davis
  • 01/21/22


If you have recently closed a deal, congratulations! It was probably a bit of a nerve-racking experience as well as the biggest purchase you’ll ever make, but you made it through.

Once you’ve unpacked, gotten settled into your dream home, and had a chance to catch your breath, you should read up on the tax advantages to homeownership. You probably already have an idea of what some of them are from interactions with your mortgage lender and real estate agent. You might have even consulted a tax attorney or accountant in the process of buying your home and have already discussed what you’ll be able to write off.

If you are just starting your search for homes for sale, be sure to familiarize yourself with the tax advantages of homeownership. It’s good to know these things going into the process, and it will give you a little peace of mind knowing that you’ll be able to take some deductions.

While there are several tax deductions available for homebuyers, the major ones are mortgage interest, property taxes, points that you paid to secure a favorable interest rate on your mortgage, and private mortgage insurance.

Choose an Experienced Agent 

If you’re just beginning your search, you first need to hire a great real estate agent to help steer you through what can be a fast-paced, high-pressure process.

The median price of a single-family home in Orange County remains above $1 million. Trying to make a purchase that big by yourself can lead to costly mistakes. A great real estate agent will be able to put his or her expertise to work for you, starting with finding great properties to view, writing a competitive offer, and guiding you through the complicated closing process.

Good agents who are familiar with every aspect of the market know when properties become available and can quickly schedule a showing or virtual tour. They also know where prices have been and where they are headed. Once you find a home that tops your list, your agent will be able to compare it to similar homes that have sold in recent months and help you decide how much to offer. These are known as “comps,” and you’ll be hearing that word a fair amount.

As much as anything, your agent will be your closest friend during the process. There might be some disappointments along the way if you have offers rejected or lose a bidding war, but your agent will remain positive and encourage you to keep trying.

Arrange Financing

Next, visit two or three mortgage lenders to compare rates and terms. When you’ve found an ideal loan that matches your home-buying budget, get a letter of preapproval so sellers know you’re serious about buying their home and that your financing is solid.

While you’re sorting through mortgage rates and terms, ask lenders to explain the tax advantages to homeownership. Your loan officer probably has printed materials showing what those advantages are.

That way, when it comes time to file your tax return, you will be up to speed with what deductions you can take and what forms and documentation you’ll need.

Regardless of what your lender tells you and what you might read on the internet, always consult with a tax attorney or qualified tax preparer when it’s time to do your taxes. With a purchase as complicated as buying a home, it’s best that you have a professional file your return to make sure you are getting every deduction you qualify for and properly document them.

Here are the main deductions you can claim on your federal taxes after buying a house:

Mortgage Interest

When you own San Juan real estate, you’ll be able to deduct the interest on your home loan. In California, that can be substantial in today’s market, where prices keep going up. Married couples filing jointly and single filers can deduct the interest on up to $750,000 of mortgage debt. Married taxpayers filing separately can each deduct up to $375,000.

Property Taxes

Another substantial cost Californians face every year is property taxes. When filing federal tax returns, homeowners can deduct state and local property taxes of up to $10,000 per year, or $5,000 if married and filing separately. You might not be able to deduct everything you pay, but every amount you can deduct certainly helps your bottom line.

Mortgage Points

You can deduct any points, also known as discount points, that you paid in exchange for lowering the interest rate on your mortgage. A tax attorney will be able to tell you if you need to deduct them in the year you pay them or over the life of your loan. Make sure that they were legitimate points and not other mortgage fees that the lender said you could deduct.

Private Mortgage Insurance

If you make a down payment of less than 20% on a conventional home loan, you will be charged private mortgage insurance, or PMI, which compensates lenders if you default. The cost of PMI is deductible.

These are the major tax advantages to homeownership. Again, always check with a qualified tax advisor or attorney before claiming any tax deduction.

Knowing the tax advantages of homeownership will help you make a solid decision when it comes to buying a new home. If you are interested in purchasing or selling Orange County real estate, let Davis Osgood Group put their extensive experience to work for you.



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