Renting a home has its advantages (e.g., the freedom of picking up stakes and moving at will). On the other hand, the benefits of homeownership far outweigh those of renting. Further increase in equity that comes from updating your home from time to time and reaping the benefits of normal market appreciation are the two advantages that we all know about. The third, and often lesser known, benefit is “tax benefits” that come with purchasing a home. These include the following:
- A proportional reduction in your tax liability will occur, when you pay principal and interest every month on your loan. The reduction in your mortgage interest, due to this monthly payment, makes this tax benefit available to you.
- Paying property taxes after purchasing a home can add to your overall income tax deductions.
- Your mortgage insurance premium is deductible, if it is included in your loan. Another necessary condition is that your income has to come under the qualification bracket. With both of these conditions fulfilled, your tax liability is lowered.
- Solar panels and wind turbines are examples of home improvements that can increase your tax deduction, as they fall under the category of eco-friendly home improvements. Making eco-friendly improvements to your home qualifies you for a percentage of tax deductions.
- Your tax liability can be reduced if your business is home based and you have some home improvements associated with it. You can receive added tax deductions through the square footage percentage of the space in which your business is conducted.