Owning your own home is amazing for a number of reasons. No annoying landlords, fewer rules and you can finally paint the walls! And hey, maybe you can even park your car in a nice, warm garage.
But never forget that owning a home is also an investment. Beyond that, your house may be able to help reduce your tax bill. Here are five perks of home ownership you should keep in mind when meeting with your accountant this spring.
Remember: You’ll need to itemize your deductions rather than take the standard deduction in order to reap the benefits of home ownership. Itemizing makes the tax-preparation process slightly more complicated, and you’ll need to keep good records throughout the year, but it can also mean big savings, according to TurboTax.
1. Property Taxes Are Deductible (Score!)
The amount you spend on property taxes is deductible. If your bank pays the taxes for you, they’ll send you a 1098 form, which will contain the amount you paid in property taxes, according to Investopedia. If you pay your municipality directly, you’ll need to keep a record of that, whether it’s a bank transfer or a check. You can also deduct any real estate taxes you reimbursed the seller for when you purchased the home.
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2. You Can Deduct Interest
Every month, money leaves your bank account and heads to the bank for your mortgage payment. Some of this money goes to paying principal, aka the balance of the loan, and some goes to paying interest. The Internal Revenue Services lets you deduct those interest payments come tax season. This is an especially important perk to take advantage of in the first years of home ownership, when you’re paying a lot more interest than you are principal, according to Forbes.
3. Your Home Office Is A Win
Having a home office means you can deduct part of your utilities, home maintenance costs and other expenses—and this could mean big savings. If you use a room in your home exclusively for business and it’s the main place you conduct business, your home office is deductible.
“What drives me crazy is when people don’t take a home office deduction when it’s so easy to do and when they are entitled to it,” Tom Wheelwright, CPA and founder of ProVision Wealth Strategists, told Realtor.com.
4. Rental Properties Mean Big Deductions
If you’re renting out your home, you do need to report those rent checks as income, according to the IRS. But, you’re also entitled to deductions for many expenses you incur, such as repairs, depreciation and operating expenses (like if you pay a property management company to handle the rental unit). You can also deduct any advertisements you place to find renters and materials you bought to make repairs.
5. Mortgage Points Are Deductible
When you are approved for a home mortgage, some banks will let you pay them a fee at closing in exchange for a lower interest rate. These so-called mortgage points, which are typically calculated as 1 percent of your mortgage amount, can help you lower your monthly mortgage payment, according to Bank of America. Points are a form of prepaid interest and the IRS lets you deduct them the year you pay them.