Tax Benefits You Can Expect When Purchasing A House

Owning a home is a big commitment and a life goal for some folks. To purchase a beautiful suburban home with a white picket fence, multiple rooms, and a spacious backyard. Also, being able to raise a family within that home and make memories for years. Being a homeowner also has many gracious perks when it comes to tax season, via Investopedia. Instead of living in an apartment where you pay a landlord rent every month to live in a small space, you could pay the same amount for a house.

Your mortgage and interests give you money back or can reduce your tax bill when it comes to filing for taxes, per Investopedia. There are more tax breaks that will make your tax form switch from filing standard deductions to itemizing deductions. It'll be a longer process but well worth it in the end. Here are some benefits to remember when tax season rolls around or if you're considering buying a home.

Get the most out of your mortgage

When you purchase a home, your mortgage will be the one recurring payment you'll be making every month. The interest on the mortgage can be used as a deduction for your income during tax season, claims Rocket Mortgage. As a single filer, you can deduct up to $750,000 in this one item, and as a joint filer, each spouse can deduct up to $350,000. With a mortgage comes insurance which can also be used as an itemized deduction. The private mortgage insurance, PMI, protects lenders to continue making payments if the homeowner is unable to.

Property taxes are another huge benefit for your taxes when you purchase a home, per Rocket Mortgage. There are state taxes and local taxes you're likely to pay, so you can take advantage of it by deducting up to $5,000 for single filers or up to $10,000 for joint filers. If you've lived in your house for years and have made expensive renovating improvements, you're able to use that as a tax break. Although it has to be medical affiliated improvements instead of a kitchen renovation. Making your home accessible will qualify for a tax break.

IRA deductions

Sometimes when you first purchase a home, you might have to pay for "points," which you're charged when you get your mortgage, according to TurboTax. The points are a percentage of the loan you take out, and if you pay the entire amount, you're eligible to deduct it on your taxes. The interesting thing is if you didn't pay the points because the seller paid them, you can still deduct them on your tax form.

If you have an IRA set up, then you can try to get away with filing for a penalty-free IRA payout deduction. When you're looking into buying a home, you can use up to $10,000 from your 401K to make a down payment on your home via TurboTax. Keep in mind that the $10,000 is a one-time use; you can't pull out another $10,000 for another house. In order to be able to use it as a deduction, you have to buy a home or build one within 120 days of withdrawing the money. It's crucial to think about whether or not you'd want to use those funds because they could be taxed and be collected by the federal or state. There are still some great benefits if you decide to skip out on this one.