What Are Tax Benefits To Owning A Home

Real Estate

Tax Benefits

 

Do you know the reasons for owning a home in Winchester? Owning your own home often gives people a feeling of power over their own destinies but it has other benefits also. For instance, you’re no longer giving money away to the owner of a place for the privilege of unpacking your stuff there. You’re no longer at the whim of an absentee landlord. And best of all, you’re building equity in your home and you’ve made the biggest financial investment you’re likely ever to make, and it’s relatively low risk and high return. Plus you get to live there.

 

But there’s more. Tax benefits, and in these tough economic times, it’s nice to have a buffer between you and a growing tax burden. Mortgage interest, home equity loan interest and sometimes mortgage insurance premiums are tax deductible. What does this mean? It means that paying real estate interest and insurance lowers your tax liability by lowering your income.

 

Also, the profit you make when selling a home is tax free up to $250,000 if you’re single and $500,000 if you’re married and file taxes jointly. Amounts over those are taxable (capital gains) at 15 percent, but that’s another article.

 

To spell it out further, here’s an example of how your taxes are affected by owning a home:

 

Sue is a single, childless woman who rents a house for $1200 a month. Her adjusted gross annual income is $128,000. She has $3500 state income tax withheld from her paychecks during the year and qualifies for no itemized deductions. Her federal income tax liability for the year:

 

Adjusted gross income: $128,000

Standard deduction: single $4400

Personal exemption $2800

Taxable income $120,800

Sue's 2008 federal income tax: $32,129. Ouch!!

 

But if Sue buys a house in #WinchesterVA with a mortgage payment of $1200 per month, everything changes:

 

Adjusted gross income $128,000

Itemized deduction for state income taxes: $3500

Itemized deduction for real estate taxes: $1500

Itemized deduction for mortgage interest: $11,400

Personal exemption $2800

=taxable income: $108,800

=Sue’s federal income tax: $28,409. She just saved almost $4000 by buying a house instead of paying rent.