How Can a Home Loan Save You on Income Taxes?
Tax deductions are a great way to save money on federal income taxes. Mortgage interest loan deductions reduce outgoing taxes as well as manage cash flows.
What are Income Tax Deductions?
Income tax deductions such as a charitable gift, medical expenses, or other expenses will reduce income taxes. When itemized, these tax deductions must not exceed the standard deduction. Income tax deductions are confined to interest on debts as secured by the primary residence or second home. Additionally, any tax deductions are limited to interests on the first $1 million of debt (or $500,000 if filing separately).
There are several internet calculator platforms to assist in determining your tax savings. According to the Bank Rate calculator, a New Jersey resident in the 25% federal tax bracket and 6.37% state tax bracket with a 30 year, 4% interest loan for $200,000 would enjoy a tax benefit of $2,959 the first year of the loan.
Tax Benefits for Homeowners
As a homeowner, mortgage interests, property tax payments, and profits from home sales as well as other expenses are also deductible from your federal taxable income.
Interest paid on mortgages is tax deductible if itemized on the tax return.
Occasionally, itemizing deductions may fail to exceed the standard deduction. In such cases, owning a home does not allow for any additional tax benefits.
Research your mortgage situation and how it may qualify you for any income tax deductions.