The Blog
7 Reasons to Buy a Home: Here is Reason #1.
September 7, 2011
By Heather Cole
Gwinnett Daily Post: Homesource:
September 3, 2011
For taxpayers, one of the best times of the year can actually be tax time, believe it or not, especially if you are someone who has a number of deductions. For those of you who unfortunately do not have those deductions and have not had the joy of seeing the refund calculator at the top of your 1040EZ form on Turbo Tax go up instead of down, there is a great way to see that change in your tax return next year - PURCHASE A HOME!
Home ownership is beneficial for many reasons, including having a place to call your own, especially at the end of a hard day at work; becoming a part of a community so that you can know what it is like to belong to a network of people who help each other on a regular basis and rally around each other when times are difficult; and knowing what it is like to be somewhere that is stable and safe for your family.
On a personal level, these reasons are enough to own a home, but the government believes that owning a home should not not just benefit you on a personal level, but also a financial level. With that in mind, the government encourages people to buy homes by giving them a remarkable tax break.
Generally speaking, the interest that you pay on your home loan is deducted from your federal income tax when you file. This amount can be significant and is dependent on a few factors, including your income, how much you deduct, and how much money you pay in interest toward your mortgage every month. The basic gist of all of it is this, however, interest paid on a home loan is deducted from your income as if you make less money. For instance, if you make $100,000 a year and you pay $7500 in interest on your home, you would only pay taxes on$92,500 of income. Although this is just a simplified example of what you could expect when tax time comes around, it is helpful to see the huge difference you will see at tax time. Before purchasing a home, though, it is important to consult a tax professional to help you determine how you would be affected in real terms when you file your taxes. Also, another important option to consider when speaking to a tax consultant and your real estate agent is what different types of mortgages will do for your taxes, i.e. fifteen year, thirty year mortgage, etc. The other significant fact to remember is that this deduction, unlike giving clothes or money to charity, is not merely a one-time event, but a deduction that you will be able to claim each and every year that you own the home. Nationwide, this tax deduction has made an enormous impact on taxpayers who own homes which is evident when you look at the following statistics:
- 51 Million - or 68 percent - of the approximately 75 million owner-occupied homes in the US in 2009 had a mortgage
- 38.5 million taxpayers claimed a mortgage interest deduction (MID), deducting a total of $470 billion in 2008.
- The average taxpayer claiming the MID deducted $12,200 from taxable income in 2008.
- Therefore, the average taxpayer saved $30,050 in taxes by claiming the mortgage interest deduction1 (states as "1" since there are two types of deductions- mortgage interest deduction and the real estate tax deduction).
- The total tax savings from the MID in the US in 2008 was $117 billion.
