Several advantages come with homeownership. This includes the ability to customize the house to suit your taste. However, the advantage is the tax exemptions on the imputed rental income from their own homes. Homeowners are exempted from taxes payable on the rental value of their homes.

Tax deductions

The US tax code allows homeowners to deduct both property tax and mortgage interest and other expenses from their federal taxable income if they itemize their deductions. Homeowners are allowed to itemize and subtract their tax deductions from their adjusted gross income if they are more than the standard deduction allowed by the federal government. These deductions are reduced from the homeowner’s gross income before taxation.

In addition to single-family homes, tax breaks are also available to those with townhouses, mobile homes, cooperative apartments, and condominiums as long as they are entering into a mortgage contract.

In the world of taxation, there are both deductions and credits. Credits are in the form of coupons deducted from the tax bill. On the other hand, deductions reduce one’s taxable income, which in turn reduces their tax liability. Below are the common types of tax deductions:

Mortgage Interest

Homeowners are allowed to deduct all their home mortgage interest from their taxable income. There are, however, a few exemptions on this provision. For instance, the total amount of mortgage deductible every year cannot exceed $1 million.

Real Estate Taxes

Property tax is deductible from the total taxable income. This amount is always in the 1098 form for those who pay their taxes through a lender escrow account. Those who pay directly to their municipality are issued automatic transfer or a check.

Points

Some homeowners may pay points to lenders in the form of refinancing or a new loan. The points are always priced and form a percentage of the total loan.

Tax Credits

There are some tax credits for homeowners. These include improvements to the home’s energy efficiency and qualify for a federal tax credit of 30% of the installation cost.