OVERVIEW
Homeownership is touted as one of the greatest tax benefits for many Americans. Buying a home offers a variety of tax deductions that can mean big savings for you in the long term. Learn how renting vs buying a home will affect your taxes.
TABLE OF CONTENTS
- Video transcript:
Video transcript:
Hello, I’m Nick from TurboTax with some tips on tax breaks when it comes to renting versus buying a home.
Are you looking for big tax breaks? Then you may want to start looking into buying a home instead of renting.
Most people can deduct all of the mortgage interest that they’ve paid. That’s a biggie! And valuable in the early years of a mortgage, since most of the money paid is interest.
Property taxes may also be fully deductible.
Major home improvements are not immediately deductible, but you can add those expenses to the cost basis of the home so that when you sell it, any taxable gain is reduced by the sums you invested in improvements.
You could be eligible for the Residential Energy Efficient Property Credit, too, in an amount up to thirty percent of the cost of alternative energy equipment installed on or in your home, such as solar hot water heaters or wind turbines.
You may also be able to withdraw up to ten thousand dollars from your IRA early without the hefty penalty if the withdrawal goes toward buying a home.
Renting a home, on the other hand, offers few tax breaks. If you use your rented home for business, then you may deduct a portion of your rent payment. Also, a few states offer a small deduction for renters on their state taxes.
So when it comes to the tax breaks of renting versus buying a home, buying is the winner.
Let a local tax expert matched to your unique situation get your taxes done 100% right with TurboTax Live Full Service. Your expert can work with you in real time and maximize your deductions, finding every dollar you deserve, guaranteed.
You can also file taxes on your own with TurboTax Deluxe. We’ll search over 350 deductions and credits so you don’t miss a thing.
As a tax expert with a deep understanding of the intricacies of homeownership and tax implications, let's delve into the concepts outlined in the provided article.
Mortgage Interest Deduction: One of the key advantages of homeownership highlighted in the article is the ability to deduct mortgage interest. This deduction is a significant tax break for homeowners, especially in the early years of a mortgage when a substantial portion of the monthly payment goes toward interest. This deduction can result in substantial savings over the long term.
Property Tax Deduction: The article also mentions that property taxes may be fully deductible. Homeowners can include the amount paid in property taxes as part of their deductions when filing their income tax returns. This can further contribute to reducing the overall taxable income.
Home Improvements and Cost Basis Adjustment: While major home improvements are not immediately deductible, the article suggests that homeowners can add these expenses to the cost basis of the home. This strategy becomes beneficial when selling the property because the sums invested in improvements can reduce any taxable gain upon sale.
Residential Energy Efficient Property Credit: Homeowners may be eligible for the Residential Energy Efficient Property Credit. This credit, as outlined in the article, can amount to up to thirty percent of the cost of alternative energy equipment installed in the home. Examples include solar hot water heaters or wind turbines, providing an additional incentive for environmentally friendly home upgrades.
IRA Withdrawal for Home Purchase: The article mentions a provision that allows individuals to withdraw up to ten thousand dollars from their IRA early without a hefty penalty if the withdrawal is used for buying a home. This demonstrates the interconnectedness of homeownership and certain financial planning strategies.
Tax Implications of Renting: Contrasting homeownership, the article notes that renting a home offers fewer tax breaks. While business-related deductions for rented homes are mentioned, the benefits seem to be more limited compared to those available for homeowners.
In summary, the evidence presented in the article supports the idea that buying a home generally provides more substantial tax benefits compared to renting. The various deductions and credits outlined illustrate the potential for significant long-term savings, making homeownership an attractive option for individuals seeking tax advantages.
