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Why Own a Home? Understanding the Different Tax Benefits of Owning a Property

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By : Roby Hicks    99 or more times read
Indeed, owning a property offers lots of benefits. In addition to providing homeowners with shelter, it also allows them to modify the property any way they want without asking permission from a landlord. Although he has to make sure that, he follows the rules and regulations of building codes in the locality. In addition to this, he can also start building his home equity. Finally, he also gets to enjoy the different tax benefits of owning a property.

Thanks to the different tax deductibles, you generate for purchasing a property. Here are a few of them:

Mortgage interest is among the tax deductibles you can use after purchasing a property. Once you have a mortgage, you are bound to pay interest. In return, your interest expenses can be tax deductible. These interest expenses are not only limited on interest on your mortgage. You can also deduct interest from home equity loans even if you have not used them to improve your property. You can deduct as much as 1 million dollars for mortgage interest and 100 thousand dollars for home equity.

Another tax deductible is the real estate taxes or commonly known as property taxes. Once you purchase a property, you are obliged to pay property taxes. In almost all states, this is an annual obligation. Fortunately, you can deduct this from your taxes. However, there are a few conditions you need to satisfy. First, the tax paid should be for the welfare of the public and not for a certain task done specifically for you. In addition to that, you can only claim such deduction during the same year the tax is paid. Finally, claims can only be made nonce you make an itemized deduction. If it is not itemized, then it will not be honored.

Another tax advantage is the tax credit offered by the government. The tax credit is only offered for a limited period. There were tax credits offered in 2008 to boost the real estate industry. The tax credits were extended in 2009 as well in 2010. However, there have been a few changes in the conditions. The tax credits are offered to first time homebuyers, or to those who have not purchased a property in the last three years. For those who want to qualify for the tax credit now, check the date on your purchase contract. You will most likely qualify if it falls after May 1, 2010. However, it should not be later than January 1, 2011.

You can also deduct points. Points are prepaid interest paid during the closing. Paying more points will reduce your interest. One point is equivalent to one percent of the amount you borrowed. The amount you paid for points may be tax deductible.

You can also deduct the private mortgage interest or the PMI. This is normally paid when the down payment you made is less than 20% of the amount borrowed. Such payments can be deducted if it satisfies the different conditions. In addition to that, the loan has to be made in 2006 or the years after that.
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