TAX DOLLARS AND SENSE: THE ADVANTAGES OF HOME OWNERSHIP

Make the leap from renting to owning your own home, and a whole new world opens up for you. Now you can finally install that killer surround sound system you’ve always craved, or perfectly customize your kitchen to suit your culinary needs. Decorate how you want, live the way you like, all without having to ask permission. No more temptation to make improvements to someone else’s investment at your own expense. Now the investment is yours, and as such, there are also quite a few financial reasons you’ll be smiling too.

For one thing, home ownership means you aren’t just throwing your money away on rent each month, but are investing it in the equity of your own home. With so many great, low-interest mortgagesavailable at Bank of Internet USA, this has never been easier. But many of the fiscal advantages of home ownership are also due to the reductions in your tax burden*. Let’s review the specific advantages.

Tax Deductions vs Tax Credits

There are two basic ways to pay less in taxes: credits and deductions. A credit is like a coupon that deducts a certain amount of money from what you owe at tax time. For example, an $800 tax credit would mean your bill would go down by $800. A tax deduction reduces the amount of your adjusted gross income, which in turn reduces your tax liability. Here’s how: if you’re in the 25% tax bracket, your tax liability will be reduced by 25% of the total claimed deduction. So if you claim a $2,000 deduction, you can expect your tax liability to drop by about $500*.

Types of Home Ownership Deductions

The most significant tax advantages of home ownership come from tax deductions. They include:

• Mortgage Deductions: Once you buy a home, you can begin to deduct your mortgage interest*. For many people this results in significant savings, because depending on how your loan is structured, interest may be a large component of your monthly payment. There are some exceptions, for example the maximum you can deduct is $1 million yearly, but in many cases, you can even deduct late fees if they are accrued*.
• Point Deductions: When you buy a home, you can claim the points (origination fees) on your loan*, even if it’s the seller who paid them. Origination fees of 1% or more are not uncommon so, again, this could mean another considerable deduction for that first year of home ownership.
• Property Tax Deductions: Another significant portion of your mortgage is what you pay in property taxes. This, too, is deductible on both your primary residence, as well as a vacation home*.
• Home Equity Line Deductions: If you have a home equity loan or line of credit, the interest on that can be deducted*. This is especially beneficial to those who want to transfer high-interest-rate credit card debt to an attractive low-interest home equity loan, and take advantage of the tax break as well as the rate reduction*.
• The Capital Gains Exclusion: If you buy a home and live in it as your primary residence for at least two years, you are eligible for a capital gains exclusion. This means that when you sell, you can keep profits of up to $250,000 ($500,000 if you’re married) without owing any capital gains tax*.
• Private Mortgage Insurance (PMI): Lenders ask that borrowers who put down less than 20% also pay for Private Mortgage Insurance (PMI). If you took out a loan in 2007 or later, and your adjusted gross income is less than $50,000 (single), or $100,000 (married), this PMI is also deductible*.

In addition to location, location and location, money is one of the biggest considerations when buying a home. But the price of the property and whether or not the mortgage comes with a low interest rate are not the only financial considerations here. Remember to account for the tax advantages of home ownership as well before figuring out your bottom line*. And when you’re ready to find some of the lowest interest rates in the industry, a Bank of Internet USA Mortgage Consultant will be on hand to help walk you through every step of the mortgage process.