How Home Ownership Can Help Reduce Taxes

from Lake Nona Social Magazine - Issue 11

Lake Nona Needs a Library

HOW OWNING A HOME CAN HELP

REDUCE REDUCE YOUR TAXES YOUR TAXES

BY LAWRENCE BELLIDO BROKER ASSOCIATE  KELLER WILLIAMS ADVANTAGE III REALTY

With tax season in full swing — that’s right, folks, April 15 is approaching rapidly — it’s a good time to talk about how owning a home affects your taxes. Clearly, owning a home is a smart financial decision in most circumstances. That’s because, as you pay down the mortgage, assuming the value of the house increases, the difference between what the house is worth and what you owe on it grows. That difference is known as “equity” and it’s a financial asset you own.

There are also substantial tax advantages, known as “deductions,” that are available only to homeowners and they reduce what you owe on your taxes each year. By combining these tax savings with the growing equity, owning the home you live in is a great way to build wealth. Please note… before making any financial decisions based on the information below, consult with your CPA or tax advisor:

MORTGAGE INTEREST DEDUCTION

With every monthly mortgage payment, a substantial portion of the amount you pay is interest on the loan. At first, the interest is almost 100 percent of the payment amount then very gradually decreases over time. When you file your taxes, you can deduct the total amount of interest you paid over the year from your income. Because the tax rate is applied to a lower income figure, it reduces your tax debt.

PROPERTY TAX DEDUCTION

When you look at your monthly mortgage statement, you'll see a figure that is paid toward escrow to pay your homeowners insurance and property taxes. The property tax amount, which typically goes to local and state governments, can also be deducted from your income when filing your taxes.”

HOME OFFICE DEDUCTION

If you own a business and run it from home, you may be eligible to deduct a portion of what you pay on your home from your income. However, the filing requirements are very strict so you should let a professional CPA handle your taxes if this is an option you want to explore.

Again, this is intended as a general overview and I strongly advise you to discuss this with your accountant, CPA, or financial advisor before making any important financial decisions.