I get this questions a lot from my clients asking me if home ownership and having a mortgage is still worth it for income tax purposes. My answer for the most part is yes. Now for purposes of this article, we are not going to address those of you – not me – who are heading toward retirement and winding down your earning years. Many of you are thinking about paying off your homes. Depending on your income tax bracket that may or may not be such a great idea.
Mortgage interest and home ownership is by far the best tax write off or tax deduction available. Last week, I told you about strategic tax planning being by far the best way to lower your income taxes. Even if you make the silly mistake of not tax planning, home ownership and having a mortgage is a great way to lower your income taxes.
Everybody needs a placed to stay. If you have to file an income tax return, chances are you are not staying in a home rent free. The difference between paying rent and a home mortgage deduction is huge when it comes to your tax return. For the most part, rent is not tax deductible. Therefore, someone paying rent at $1500 per month versus someone paying a mortgage at $1500 per month is not the same. The person paying the mortgage is going to be better off from a tax perspective.
The mortgage interest deduction will give the taxpayer an opportunity to itemize deductions versus taking the standard deduction that IRS allows for taxpayers who cannot itemize their deductions. Itemizing your deductions simply means you have some expenses that IRS allows to be deducted against income and you want to list them out separately on you income tax return in hopes of them adding up to higher than the standard deduction. A taxpayer who can itemize their deductions generally will have other expenses to add to their mortgage interest to make their deduction even larger. Not only are you able to write off the mortgage but now you are able to itemize your deductions and take advantage of other write offs.
Your itemized deductions will require you to file a Long Income Tax Return or form 1040 and include a schedule A. The extra time and costs may be well worth it. If you have a mortgage payment and can add additional expenses, chances are you will be in a much lower tax bracket. IRS allows taxpayers who can itemize to write off certain other expenses that include but are not limited to:
- Medical Expenses in excess of 10% of your income
- Long Term Care Premiums
- DMV fees
- Sales Tax On Autos
- Property Taxes
- Personal Property Taxes
- Investment Fees
- Safety Deposit Box Fees
- Unreimbursed work related expenses
- Gambling losses
- Tax preparation Fees
- Charitable Contributions
- Union Dues
- State Income Taxes
- ………..and more
You may think you cannot qualify to buy a home or the American Dream is gone. I think more people are qualified to buy homes then one may think. I am starting to see more of my clients take the plunge into home ownership and I am glad to see this trend. There have been so many unusual occurrences taking place over the last several years that it is a pleasure to see you getting back to the basics. If you have questions about the tax benefits of home ownership or would like to see just how impactful it can be on your income taxes, give me a call at 714-252-5822.