Tax time is upon us and it is time to start calculating our deductions.  If you are currently renting an Irmo, SC home, you are missing out on one of the biggest tax deductions out there:  home ownership.   Owning a home has numerous benefits, from the freedom to make decorative decisions to a sense of pride.  But the monetary benefits are also quite substantial, and may be worth your investment in a home purchase.  Take a look at our blog today for some basic information about the tax benefits of owning a home.  If you have any questions or would like assistance with your home search, we encourage you to give us a call anytime.  For additional information about the area, here is a link to a detailed guide about Irmo.


Tax Benefits
 

We all know the reasons for owning a home: it’s a place you can decorate and fix up according to how you want it (inside, anyway) and no landlord can tell you he doesn’t want you hanging up that beer sign or that fuchsia walls are out of the question. The feeling of walking into a place that no one else is allowed to come into unless you say so is pretty powerful.

Owning a home often gives people a feeling of power over their own destinies. Some even say that they didn’t feel like an actual adult until they signed those papers and got handed that key.


 

All these emotional reasons are important, to be sure, but in a financial sense, owning a home has its benefits too. For instance, you’re no longer giving money away to the owner of a place for the privilege of unpacking your Tupperware there. You’re no longer at the whim of an absentee landlord. And best of all, you’re building equity and you’ve made the biggest financial investment you’re likely ever to make, and it’s relatively low risk and high return. Plus you get to live there.
 
But there’s more. Tax benefits, and in these tough economic times, it’s nice to have a buffer between you and a growing tax burden. Mortgage interest, home equity loan interest and sometimes mortgage insurance premiums are tax deductible. What specifically does this mean? It means that paying real estate interest and insurance lowers your tax liability by lowering your income.
 
Also, the profit you make when selling a home is tax free up to $250,000 if you’re single and $500,000 if you’re married and file taxes jointly. Amounts over those are taxable (capital gains) at 15 percent, but that’s another article.
 

 

To spell it out further, here’s an example of how your taxes are affected by owning a home:
 
Vladimir is a single, childless guy who rents a house for $1200 a month. His adjusted gross annual income is $128,000. He has $3500 state income tax withheld from his paychecks during the year and qualifies for no itemized deductions. His federal income tax liability for the year:
 
Adjusted gross income: $128,000
Standard deduction: single $4400
Personal exemption $2800
Taxable income $120,800
Vladimir's 2008 federal income tax: $32,129. Ouch! That’s a lot of Wii games!
 
But if Vladimir buys a house with a mortgage payment of $1200 per month, everything changes:
 
Adjusted gross income $128,000
Itemized deduction for state income taxes: $3500
Itemized deduction for real estate taxes: $1500
Itemized deduction for mortgage interest: $11,400
Personal exemption $2800
=taxable income: $108,800
=Vladimir’s federal income tax: $28,409. He just saved almost $4000 by buying a house instead of paying rent.

 

 

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