If you're considering whether home ownership is the right decision for you, there are lots of different factors you'll want to take into account. Do you want to keep moving around, or are you ready to lay down roots in a community? Are you prepared for the additional upkeep that home ownership requires?
But one of the big factors in home ownership that few potential buyers consider is the tax benefits of getting a mortgage. Although it may seem counter-intuitive, getting a mortgage on a property that you own can reap lots of dividends come tax time.
So how does a mortgage work for you and help you keep more of your hard-earned money? Here's what you need to know.
Mortgage Interest Deductions: How Your Mortgage Interest Saves You Money
If you're a homeowner in the United States, your mortgage interest is tax deductible. The mortgage interest tax deduction was introduced in 1913, and is one of the longest standing and most used tax deductions out there. The deduction allows you to deduct all of your mortgage interest payments from your federal taxes.
But in order to deduct your interest payments, you'll need to meet certain basic eligibility requirements. Firstly, you'll need to file Form 1040 and itemize your deductions on Schedule A in order to be eligible. You'll also need to be the primary borrower named in the mortgage – you can't deduct interest on someone else's mortgage, even if you're the one making the payments.
And finally, you need to (at some point) make a payment on your home. Note that rental properties are not usually eligible for a mortgage interest deduction (though there are some exceptions).
First-Time Buyer? Mortgage Credits And Other Buyer Programs Keep More Money in Your Pocket
If you're a first-time buyer (and even if you're not), you'll have access to a variety of new buyer incentives and mortgage tax credits that other buyers don't receive. Firstly, as a first-time buyer, you're able to take out $10,000 from your traditional or Roth IRA at any point during your lifetime – without paying the 10% penalty for withdrawing early. There are also several credit programs for buyers, including the Residential Energy Credit, which gives you up to $500 toward any home improvement project or equipment purchase that makes your home more energy efficient. Currently one local lender is offering $500.00 credit towards costs on a VA Loan. Those savings and credits can add up and should not be overlooked- by buyers or sellers. They affect the affordability and in buying and selling real estate affordability is one of many factors considered.
It may seem like getting a mortgage is a great way to spend money, but it's also a great way to save money through various programs and rebates. If you'd like to learn more about any of the programs that may be available to you drop me a message or give me a call. I'd be honored to consult with you on all of your real estate buying, selling or investing needs.