As we come to the end of the year, the home buying season in the Boston area is just a few months away from commencement.
Perhaps you are considering purchasing a home?
- first timer or trading up?
- maybe going from a rental situation?
- or perhaps Mom is throwing you out the basement?(put down the Playstation & do your own laundry)
Lets Look at Home Ownership
“Home is wherever you lay your hat.”
“Be ever so humble, there’s no place like home.”
BENEFITS OF HOME OWNERSHIP:
• A Deduction for Mortgage Interest
Your mortgage payment is comprised of principal repayment and interest on the loan and in the early years of your mortgage, it is mainly interest you are paying. This interest deduction allows you to reduce your taxable income. To do so, you must itemize your deductions rather than taking the standard deduction. Itemizing things like charitable contributions, medical costs, and state and local taxes.
As a side note: You should always itemize your deductions when they exceed the standard amount, because that will lower your taxes. However, you need to keep in mind the recent increase in the standard deduction which will rule out itemizing for some folks.
New Tax Law :
For single filers, the standard deduction has increased from $6,350 to $12,000.
For married couples filing jointly, it’s increased from $12,700 to $24,000.
Currently, you can deduct interest on mortgages of up to $1 million (I don’t think this will apply to our readers :-). That will drop to $750,000 for new home purchases. The $1 million cap remains for existing mortgages.
• A Deduction for Property taxes
The ability to deduct the amount you pay in property taxes is going from fully deductible in 2017 to a $10,000 cap in 2018. So this will include state and local income taxes, property taxes, and real estate taxes.
People are scrambling at year end attempting to prepay their 2018 real estate taxes now to get the full deduction.
Similar to Mortgage Interest, you would also have to itemize your deductions to take advantage of this. As you can see, the new law is pushing for the use of the standard deduction over itemizing.
FYI – the deduction for interest on home-equity loans is going away.
• Ability to Build Equity
With the combination of paying down your mortgage and your home value increasing over time, you are slowly building up equity in your home. A feature not available to renters.
On top of that, unlike most assets, you can generally avoid paying tax on the growth on all or part of your home when you sell. (up to $250,000 if you file as a single taxpayer or up to $500,000 if you’re married and file jointly.)
FYI-You must have owned the home and used it as your main residence for periods that total at least 2 years out of the last 5 years. This exclusion does not apply to investment property
Ability to have a Man Cave
No explanation necessary.
Stay Warm and have a Happy New Year!