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Tax Benefits: Why It Pays To Be A Homeowner At Tax Time

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Tax season can be a rewarding time for both homebuyers and homeowners. It’s a great opportunity to understand the tax benefits of owning a home, which can include a number of tax deductions that could lead to a bigger refund check. So, listen up, especially if it’s your first time filing taxes after buying a house!

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Tax Benefits of Homeownership

What is a tax deduction? It’s an amount you subtract from your income when you file so you don’t have to pay taxes on it. By lowering your taxable income, deductions decrease the overall taxes you pay.

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Tax deductions for home-related expenses include:

  • Mortgage Interest: You can usually deduct the mortgage interest you pay on a home loan for your main home and — under certain circumstances — maybe even your second home
  • Home Equity Loan Interest: If you’ve taken out a home equity loan, you can often deduct the interest if the funds are being used for home improvements
  • Discount Points: If you purchased discount points to lower your mortgage interest rate, you could deduct these costs
  • State and Local Real Estate Taxes: Generally, you are responsible for paying property taxes for the part of the year that you owned the home. The amount you pay is usually then deductible on your income tax filing — just remember there’s a cap on the total deduction allowed.
  • Necessary Home Improvements: If you’ve made necessary improvements to your home (like modifications for medial accessibility), those costs could qualify for deductions. Definitely look into it!
  • Home Office Expenses: Do you work from home? You might be able to deduct costs related to your home office. This deduction is based on the percentage of your home used for business purposes, so keep track of those expenses.

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The Power Of Your Tax Refund

Don’t own a home yet? That’s ok. You can leverage your tax refund toward a home and make it work for you.

  • A tax refund can be a fantastic boost to your down payment savings. The more you can put down upfront, the less you’ll need to borrow. This could even help eliminate the need for private mortgage insurance (PMI), which would mean lower monthly payments.
  • Your tax refund could also help offset closing costs for a home purchase or refinance. Closing costs can include a variety of expenses, including appraisals, inspections, title insurance and lender fees. Applying your refund this way can ease some of the upfront financial pressure.

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Homeownership unlocks tax deductions that can reduce your taxable income and potentially increase your tax refund. While leveraging your tax refund can boost your savings for a down payment or closing costs, tax incentives provide ongoing returns over time. Not a homeowner yet? Let’s get started — begin your search for a local home loan expert by clicking below!

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