When considering purchasing a larger home, it is prudent to take into account the tax benefits that may be available to you.
It stands to reason that if you are buying a larger home, your mortgage loan may also be larger. Interest for a mortgage loan is fully deductible up to $1 million. Interest tax breaks don’t end with your home’s first mortgage either. Any interest paid on a home equity line of $100,000 or less is deductible.
If you are considering a second home, consider that the interest you pay for that mortgage is also fully deductible. You can even rent it out for part of the year and still deduct the mortgage interest you pay for that property. However, you must vacation at least 14 days at your second property, or more than 10% of the number of days that you do rent it out, whichever is less. Otherwise, the IRS could consider the property a rental property, and you may not be able to take the interest as a taxable deduction.
REAL ESTATE TAXES
All real estate taxes paid by you for your primary residence within a calendar year are tax deductible from your taxable income. Taxes are typically prorated as of the day of closing, so you are also able to deduct any taxes that were paid by you as of that date. Any real estate taxes you pay for a second home or a rental property are also deductible.
A point is a fee you pay a lender in order to get a better interest rate. Typically a point is 1% of the loan amount. These, too, are fully tax deductible the year you pay them if the loan is used to purchase or build your main home.
These are a few illustrations of tax benefits that can be considered when purchasing a new or larger home. Consult with an accountant for more! If you do not have a good one, ask me--I'll be happy to refer one to you.