Real Estate Investing

We’ve discussed some of your home’s tax benefits previously, but there is even more potential to be explored. The following are some additional hidden tax benefits your home possesses.

Points on mortgage loans are fully deductible. ActiveRain real estate blog network offers a good explanation:

“Points, each equal to 1 percent of the loan principal, are charged by lenders as part of the cost of the loan. You can fully deduct points associated with a home purchase mortgage, but not a mortgage broker’s commission. Refinanced mortgage points are deductible too, but only when they are amortized over the life of the loan. Once you refinance a second time, the balance of the old points from a refinanced loan offer an immediate write off, as you begin to amortize the new points.”

Certain low-income, first-time homebuyers will qualify for a mortgage tax credit — to be substracted directly from the income tax owed — worth up to 20 percent of the mortgage interest payments paid. In 1997, a new law allowed married homeowners who are filing their taxes jointly to keep, tax-free, up to $500 of their profit from selling a home. However, the home had to have been used as the couple’s primary residence for two years out of the past five.

Lastly, the home-based business is a significant tax shelter as well. Self-employment taxes can be overwhelming, but basing the business in your home allows you to deduct much more than the obvious business-related expenses. In addition to office equipment and supplies, you can deduct a portion of the monthly utilities and phone and Internet bills. How much of your monthly bills can be used as a tax deduction is directly related to what percentage your office space comprises of your overall home’s square footage. Check out a more comprehensive list of home-based business tax benefits here.