Today, most people are investing in their homes instead of living in rental homes. Despite the size of the house, people owning their own homes enjoy lots of benefits from the tax codes. They don’t have to stress about counting their homes’ rental values, which is a taxable income to those renting their homes. Homeowners also don’t receive deductions from property taxes and mortgage interest because they aren’t taxed on imputed rental income. However, homeowners who need advice about taxes should request property tax consulting services from a reputable consultant. Below are the tax benefits of owning a home.
Property Tax Deduction
Itemization has allowed many homeowners to enjoy the benefits of owning a home. According to the Office of Tax Analysis (OTA), homeowners saved $6 billion in income tax in 2019 because they itemized. Again, The Tax Cuts and Jobs Act (TCJA) put some money for taxpayers to deduct on the state and local taxes. Therefore, homeowners who itemize deductions benefit from a lower taxable income on their property taxes needed for their homes.
Mortgage Interest Deduction
Homeowners pay a lower home mortgage taxable income if they itemize deductions. This was made possible by TCJA, in which homeowners were taxed for purchasing and rehabilitating homes before. Homeowners who need to improve their first and second homes and have a mortgage debt still have a deduction of interest because TCJA deducted a maximum of $750,000 in 2017. This resulted in a deduction cost of at least $25.1 in the 2019 fiscal year. However, before TCJA was enacted, OTA estimated that the fiscal year 2018 could have about $74.5 billion of mortgage interest deduction.
Profits from Reselling Homes
Property owners pay a capital gains tax from the profits they get after selling their property. However, homeowners who need to sell their homes don’t have to worry about taxable income because they can be excluded from a taxable income of up to $250 000. These homeowners must meet a specific criterion, including that they mustn’t have had capital gains excluded from selling another home in the past two years, or the house they need to sell is their main place of residence for two years from the past five years. According to OTA, homeowners paid income tax lower by $43.6 billion in the 2019 fiscal year.
People who invest in various properties are taxed from their returns. However, homeowners don’t pay imputed rent despite homes being investments. On the contrary, landlords are treated differently from homeowners, despite homeowners being landlords and renters. Landlords are taxed on the income they receive from renters, but homeowners aren’t taxed. According to OTA, federal revenue went down by almost 12.3 billion in the fiscal year 2019 due to homeowners’ exclusion of imputed rent. Despite this, this is an immense benefit for various homeowners despite owning one or several homes.
Imputed rent and mortgage interest deduction are some of the benefits enjoyed by most homeowners. Though renters aren’t taxed from what they pay to the landlords, the landlords are taxed. So, it’s best if people consider owning their own homes, if possible, to enjoy these benefits.