Wednesday, August 22, 2012

Tax Benefits of Home Ownership

If Part 1 of The American Dream is, "Own Your Own Home," Part 2 is certainly, "Enjoy the Tax Benefits.".  Any first time home buyer knows there are tax benefits to owning real estate but that's as far as the understanding of tax laws goes. There are write-offs for people who only own one home, there are write-offs for people who own investment properties, and there are write-offs for homeowners who make certain energy efficient upgrades to their home. It can be tough to keep them all straight.

If you own real estate, and especially if you own more than one piece of property, it is a good idea to consult with a professional tax accountant to make sure you get the most of the tax benefits designed to help home owners. In the meantime, here are some things to think about before the next tax season rolls around.

7 Federal Tax Write-offs for Homeowners
  1. Oh, the interest you have paid.  Sometimes, first time home buyers think their entire mortgage payment is tax deductible.  Not so.  However, the interest you have paid that year is considered a write-off.  This is not a deductible you want to miss out on since the first several years of mortgage payments usually pay off more interest than principal.  That can add up to thousands of dollars per year for many homeowners.
  2. Property Taxes. Oops! Sometimes homeowners are so excited about deducting their mortgage interest payments that they forget their property taxes are a write-off as well.  Don't make that mistake and you will see a little more on your refund, or a little less in your "Taxes Owed" column.
  3. Energy Efficiency Tax Credits.  These tax credits are usually for homeowners who have made upgrades to their home to improve energy efficiency. Landlords also benefit if they make the upgrades to a rental property.  Unfortunately, the Feds have tightened up the "credit belt" a bit, but homeowners can still benefit from the following upgrades:
    • Geothermal heat pumps
    • Small wind Turbines
    • Solar energy systems
    • Fuel cells (residential fuel cell and micro turbine systems)
    You can read more about Federal Consumer Tax Credits here.
  4. Private Mortgage Insurance Premiums (PMI).  If you owe more than 20% of your total mortgage, you probably pay some sort of mortgage insurance to cover the bank's risk.  You may also have PMI if you owned your home prior to the decline in the real estate market because your home value may be less than the amount you owe.  Depending on your income bracket, you may be entitled to a deduction.
  5. Points for Your Points.  If you paid for points to secure a lower interest rate, you may be entitled to write these off in the same tax year.  If the points were purchased for refinancing your home, you will have to figure out how to legally disburse the credit for the length of the loan term.
  6. Settlement Costs.  If you paid taxes on real estate you purchased this year, you are probably entitled to write-off the taxes reflected in your settlement costs.  There may be other settlement costs that can be deducted but you need to consult with the IRS or a professional CPA for verification.
  7. Landlord Write-offs:  If you own investment properties, lucky you! You qualify for several write-offs that most homeowners don't.  Some of these include:
    • Depreciation of the property
    • Maintenance and repairs
    • Management fees/costs
    • Hazard insurance
    • Legal bills, including the costs of landlord forms (although usually eviction processes can't be written off)
    • Costs of advertising and tenant screening for a vacant property
These tax credits and write-offs offer incentive to save up for a down payment, take advantage of the current low interest rates, and become a bona fide homeowner.


  1. This comment has been removed by the author.

  2. Most property tax relief programs usually require that a property owner meet other eligibility requirements and file an application. Check with your local taxation authority for details about available programs to help you reduce taxes. Find Here