I have heard that you can enjoy tax deductions for buying a home in the U.S., but what are the specific benefits you can enjoy?
Generally speaking, a tax credit is a reduction in the amount of income subject to personal income tax and then a calculation of how much tax needs to be paid at the individual tax rate, which means how much income is exempt from tax.
A tax credit is a direct reduction in the amount of tax payable, that is, how much tax does not have to be paid.
1. Mortgage Interest Deduction
In the United States, most people choose to take out a loan when they buy a home. Especially now that interest rates are still relatively low, more people are taking out loans to buy homes because they can get a loan from a bank to buy a home at a relatively low interest rate and then invest their money in a higher-yielding project.
As we all know, part of the monthly mortgage repayment is the principal of the loan and part is the interest, which can be deducted as part of the itemized deductions for tax purposes. The first few years of buying a house, most of the mortgage is interest, which can be used to offset the tax deduction.
2. Mortgage insurance cost deduction
This benefit is important for low-income homeowners, who often cannot afford to make high down payments and who are forced to purchase personal mortgage insurance before the equity in their home increases to 20%, which can be used as a tax deduction.
3. Property Tax Credits
The property tax credit is a real and viable, yet often overlooked, tax deduction. Local and government property taxes paid by homeowners can be used to offset federal income taxes. Depending on state or local government regulations, homeowners with incomes as low as a certain threshold may also qualify for a special property tax credit.
4. Tax credits for energy efficient improvements
In addition to raising revenue, state tax policy serves two other purposes: to encourage taxpayers to do something or not to do something. The U.S. government has always encouraged environmental protection and energy conservation, so it gives tax credits for some energy-saving expenditures for individual households that meet the requirements.
For example, adding insulation to a home, installing solar panels, energy efficient water heaters, installing energy efficient insulated windows and doors, replacing energy efficient roofs, etc. You can get a tax credit of up to $500.
5. Tax credit for renovation costs
Home improvement projects can be used to offset the tax liability of the profit from the sale of the home when it is sold in the future. According to the NRS, the first $250,000 of profit on a homeowner's property is not taxable, and anything above $250,000 is taxable. In this case, the cost of the previous house renovation can also be used to offset the profit tax.
6. Tax deduction for expenses related to the sale of the property
Costs associated with the sale of a property may also be deductible, such as title insurance, home sale advertising, real estate agents, etc. Homeowners can also claim a capital gains tax credit for home maintenance expenses paid within 90 days prior to the sale of the home, as long as they can prove that they were paid for the purpose of selling the home.
7. Long distance relocation expenses tax deduction
Individuals who buy a home for work-related reasons and move long distances can also declare moving expenses to offset and reduce taxes, provided that the distance moved exceeds 50 miles and that receipts for moving expenses are requested.
