Home Ownership & Taxes: What You Need to Know

Just like marriage, word on the street is that there are tax benefits to owning a home. But how do real estate incentives work? How does this vary in different states? When it comes to taxes and home ownership, what do you need to know?

A Few Tax Breaks for Homeowners

We’re kicking off this blog to cover the basics: As a homeowner, you’re eligible for several tax benefits. We’ll dive deeper into this in a later blog, but here are some initial things to keep in mind:

Tax IncentiveDescription
Mortgage interest reductionDeducts interest paid (if this number is at least $600) on a mortgage.
Property tax reductionIf filing jointly, you can claim up to $10,000 in property taxes.
Home equity debtDeducts interest paid on a home equity loan.

There are a ton more real estate tax incentives — so many that we’re saving them for a separate blog — but it’s good to think about now! Why wait until tax season to know how you as a homeowner can save?

Home Ownership And Taxes: FAQ

Buying a house is such an extensive process, full of information and details that take awhile to understand. Many first-time homeowners get so caught up in the house-buying process that they don’t realize how tax codes affect them. 

If this sounds familiar, don’t panic — finding answers to common tax questions is truly a “better late than never” scenario. In fact, much (if not all) of this info can save you thousands.

How does owning a home change your tax filings?

Homeowners fill out Form 1098 using information sent to them by their lender. If you paid at least $600 in interest on your mortgage, your lender will send you the proper documents to file for a tax break.

How do homeowner taxes change from state to state?

The biggest difference between states is property taxes. There is no state that doesn’t have property taxes, but there are huge differences across the map. Homeowners pay a percentage of their home’s value for property taxes (collected by their lender), and these taxes go towards schools, roads, and other state/city needs.

However, we should take this time to mention that state taxes vary drastically. Use this info as a starting point, but always talk to a tax consultant and do your research to know what’s what.

Which states have the highest and lowest property taxes?

States With the HIGHEST TaxesTax Rate
New Jersey1.89%
New Hampshire1.86%
Texas1.81%
States With the LOWEST TaxesTax Rate
Louisiana.18%
Hawaii.26%
Alabama.33%

*As of 2019.

It’s good to know what your state’s taxes are before you buy a home. If you’re as open to living in Texas as you are to living in Alabama, you could save thousands a year.

How are international properties affected?

International properties and taxes from country to country are an extremely murky area. It’s best to consult with a tax expert who’s familiar with the country where you own (or hope to own) property.

However, there is the Foreign Investment in Real Property Tax Act (FIRPTA) to content with. As Forbes reports, “FIRPTA is unusual in that it places a withholding requirement on buyers, as opposed to sellers, who purchase U.S. real property interests worth more than $300,000 from non-U.S. owners.”

As of 2016, this withholding requirement of the total purchase price is now 15% — up from 10% in years prior. This is good to keep in mind as you peruse any international listings.

How does tax filing work for rental property owners?

There are tons of deductions that landlords can take into account. Interest on loans, depreciation of property, repairs, and travel expenses are some of the biggest deductibles. If you’re a rental property owner, make sure you keep track of every mile traveled between properties as well as a record of all repairs.

What should all homeowners do to prepare for tax season?

Our best advice is to keep records and do your research. If you’re not yet a homeowner but see this on the horizon, continue to do your research while you’re looking for the perfect home. A perfect home is a little less perfect if you haven’t properly taken taxes into account.

The amount to know about taxes is almost infinite — it’s likely well worth your while to consult a tax expert who can help you get the best real estate tax incentives. Just make sure you book an appointment before March or April!

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