When making a decision as to whether to buy a home or to rent one, considering the tax deductions on mortgage interest a homeowner receives should tip the scales in favor of owning your home. The tax deduction provides a significant decrease in your monthly mortgage payment which - if you were a renter - would go to your landlord.
The deduction allowed by the IRS is based on a number of factors in your financial picture. However, whether you owe money at the end of the year or if you are lucky enough to receive a refund, the interest paid on your mortgage for the year is an allowance that is deductible from your taxes.
When calculating the costs of renting a home as opposed to buying, first time home owners are usually very pleasantly surprised when they learn that the IRS allows tax deductions to the extent that their mortgage payment will be lower than a monthly rent payment. To qualify for a deduction on the interest paid on your mortgage, you are required to prepare a 1040 tax form and itemize your deductions.
Home ownership has another tax advantage. Equity - which is the difference between the unpaid balance on the mortgage and the market value of the home - is another benefit to the owner. If a homeowner needs some ready cash for home improvements, a college education for his children or a dream vacation and his balance is $200,000 on his home (which originally cost him $300,000 with a market value of $350,000) he has equity in his home of $150,000 and can apply for a line of credit up to 80% of this amount. If he had been renting the same home, all he would have to show for his payments would be rent receipts. Also, the interest on a personal loan is not tax deductible, but the interest on a home equity loan usually is tax deductible so the homeowner can realize additional savings on his income taxes.
The team at Cantera Real Estate is ready to help you with your home purchase. Give us a call at 1-800-790-7910 to discuss your next move!