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Buying a new home, whether it is a first or a second home, offers many benefits including having property ownership rights and opportunities to increase your wealth. However, many home buyers often overlook or fail to understand the importance of various tax considerations in the process.
Here are the key tax considerations to make when buying a home:
Many homeowners may forget to ask about this from their real estate agents, or the agents may tell them the wrong information. If the former owner was paying $2,000 annually for the property, your property taxes will most likely be higher. This is because after buying a house, your property taxes will be based on the sales price (which is most likely higher than what the former owner purchased the house for several years ago).
When you buy a first home, the tax code provides for a Home Mortgage Interest Deduction provision. That means you get tax benefits on any interest paid on loans secured to buy the home. In addition to this deduction, you may also qualify for tax credits for any energy saving home improvements as well as real estate taxes paid to the taxing authority, or at settlement. Here is a detailed bulletin by the IRS on what homeowners can enjoy as deductions or other tax benefits.
If you are planning on renting out your second home for more than 14 days a year, you must report that rent income on your tax returns. Most homeowners are surprised to find out that the income they collected from renting a house for just one month should be filed and is taxable.
Contact Midland Mortgage Corp today with any questions or to get more information on crucial tax considerations when buying a home.