There are many benefits of owning your own home. From having a safe place for you and your family to relax, to building equity, to owning a solid asset to pass down to the next generation. All are very compelling reasons to become a homeowner. The best part about owning your own home, however, is the myriad of home ownership tax deductions. These home tax deductions are simply not available to renters, and they are designed by the government to encourage home ownership. This article will touch upon the major tax benefits to owning a home.

Mortgage Interest Deductions
The most talked about of the home tax deductions is the mortgage interest deduction. You may be shocked to look at an amortization table for your first home mortgage and see that nearly 90% of every payment for the first 10 years goes to interest payments. Out of a hypothetical $1,200 monthly payment, nearly $1,050 would be applied toward interest with the remainder being divided among principal, taxes and insurance. Fortunately, this percentage ramps up in the later years of the term, but what a shock!

The good thing about this is that this interest is tax deductible. What this means is you can deduct the amount paid in mortgage interest on your primary residence from your income on your Federal Tax Return. This can effectively lower the taxes you need to pay substantially. In the most perfect of situations, it can lower your tax bracket, creating a solid savings.

Property Tax Deductions
Another tax benefit of owning a home is property tax deductions. Generally, the property taxes you pay to the local authorities are tax deductible. Although it's important to keep in mind, this can be a tricky area. The IRS publication 530 explains the ins and outs of property tax deductions for homeowners. It's available free on the web, just do a Google search. It is also critical to consult a tax professional prior to filing your tax returns. This way you can be certain you are getting the maximum home tax deductions and doing everything correctly.

Capital Gain Exclusions
This is perhaps the most exciting tax benefit for owning a home. When you sell your home, at a profit, the profit is yours to keep without having to pay capital gain taxes. The rule states that as long as you live in your home for two of the past five years, an individual can earn up to $250,000 or a couple can earn up to $500,000 profit from the sale before having to pay capital gain taxes. You'd be hard-pressed to find another investment that provides such a powerful capital gain exclusion.

The Bottom Line
There are many tax deductions that only homeowners can take advantage of. From mortgage interest deductions to property tax deductions, many tax benefits have persuaded potential homebuyers to buy homes.

Related Articles
  1. Home & Auto

    5 Luxurious Ways to Boost Your Home's Resale Value

    Not all renovations are created equal. Here are five that are most likely to make a property appreciate (and be appreciated by househunters).
  2. Personal Finance

    The 6 Most Expensive Apartments in New York City

    A look into the high, high, high end of New York City real estate.
  3. Personal Finance

    3 Castles That Cost Less Than a NYC Apartment

    Did you know you can rent an entire château, and that it might cost less than your New York pad?
  4. Investing

    5 Ways to Reduce Your Taxes After a Windfall Gain

    Windfall income is a welcome padding to any bank account, but plan for the government's share before you start spending.
  5. Retirement

    How Are 401(k) Withdrawals Taxed for Nonresidents?

    As a U.S. nonresident, deciding what to do with your 401(k) after you return home comes down to which tax penalties, if any, you're willing to incur.
  6. Taxes

    Here's How to Deduct Your Stock Losses From Your Tax Bill

    Learn the proper procedure for deducting stock investing losses, and get some tips on how to strategically take losses to lower your income tax bill.
  7. Taxes

    The 5 Countries Without Income Taxes

    Discover information on some of the best countries to consider relocating to that offer the financial benefit of charging no income tax.
  8. Home & Auto

    Read This Before Buying a Vacation Home with Friends

    Going in with friends to buy a vacation home will save you on the mortgage and expenses. But if there's conflict, it could end up costing your more.
  9. Investing Basics

    Pros & Cons of Investing in a Condo with Friends

    Buying a beach house or big-city pied-à-terre with friends can save money and make sense, but only if you set it up right. Here's how to avoid trouble. thoroughly research and discuss potential ...
  10. Investing

    Costs New Investors in Real Estate Do Not Consider

    As lucrative as real estate investment can be, there are a multitude of costs that new real estate investors must consider.
  1. Why is the Cayman Islands considered a tax haven?

    The Cayman Islands is one of the most well-known tax havens in the world. Unlike most countries, the Cayman Islands does ... Read Full Answer >>
  2. Why is Luxembourg considered a tax haven?

    Luxembourg has been the tax haven of choice for many corporations and mega-rich individuals around the world since the 197 ... Read Full Answer >>
  3. Why is Panama considered a tax haven?

    The Republic of Panama is considered one of the most well-established pure tax havens in the Caribbean due to extensive legislation ... Read Full Answer >>
  4. Why is Andorra considered a tax haven?

    Andorra is one of many locations around the globe considered a tax haven because of its relatively lenient tax laws. However, ... Read Full Answer >>
  5. How can I obtain an abatement for property taxes?

    Depending on where your property is located, your local city or county government may offer a property tax abatement program. ... Read Full Answer >>
  6. How do taxes impact Net Operating Income (NOI)?

    Net operating income (NOI) is a before-tax figure and does not take into account income taxes, loan payments, capital expenditures, ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!