Because I just completed my own personal income tax returns, I was once again reminded of the tax benefits of home ownership!
When Buyers are looking to purchase homes, there is usually a little bit of concern about taxes – as in, “Those property taxes sure seem high!” Well, that is certainly an important consideration, but there are also tax benefits to home ownership that may reduce what you end up owing your federal, state and local governments.
The most common tax benefits of home ownership are:
- Mortgage Interest Deduction – – If you itemize your deductions, you can claim a deduction for the interest that you paid on the mortgage for your primary residence. In recent years, the continuation of this important deduction has been on and off the chopping block – let your elected representatives know that this deduction is very important to you!
- Property Tax Deduction – – Those property taxes that you asked about when you purchased your home – those most likely also qualify as a deduction if you itemize. Some towns allow you to pay in 2 installments (fall and spring) so you need to keep track of the amount of property taxes you actually paid during the tax year.
Additionally, when you first purchase a home, you may have paid items at closing that have income tax implications. In January of each year, I send copies of the closing statements (HUD-1) to all my Buyer and Seller clients who closed the previous year. That way, my clients are not digging through packing boxes for paperwork to forward to their tax preparers.
Another tax benefit of home ownership, that doesn’t come from your annual income tax return, is the Homestead Exemption. It is very easy for homeowners to miss out on this benefit because they simply forget about it. In Maine, this exemption creates a reduction in the amount (assessed value) on which your local property taxes are calculated. The amount of the exemption varies from town to town, but if you have lived in your home, as your primary residence for at least 12 months, you probably qualify for a Homestead Exemption.
Example: Your property is assessed at $200,000 and your town has a Homestead Exemption of $10,000. Your mil rate is $15 per thousand of assessed value. So, without the Homestead Exemption, you would pay property taxes of $3,000 ($200,000 / $1000 = 200 x $15 = $3,000). With the exemption, you would only pay $2,850 ($200,000 – $10,000 = $190,000 / $1000 = 190 x $15 = $2,850). You’d save $150.
In Maine, this exemption does not automatically kick-in after 12 months. A homeowner must apply for the Homestead Exemption by submitting an application to the town assessor by April 1st of any year after living in the home as a primary residence for at least 12 months. Once you have the exemption, it will be applied to your property tax calculation each year.
Once my Buyer clients have been in their home for 12 months, I mail them a Homestead Exemption application and a reminder to submit their application to their town assessor before April 1st! I don’t want my clients to miss out on savings!
While I’m NOT a tax accountant or advisor, and there are many intricacies in tax law, these are pretty basic deductions. I encourage you to consult your tax professional to see how these deductions and exemptions can help you, and maybe, there are other less-known benefits for which you are eligible!
I AM an experienced real estate professional and I would be pleased to help you purchase your first home, or your next home, so that you can get in on these tax saving opportunities for next year!