How Much Interest in Ahouse Dip You Get Back on House Taxes

*Updated for tax season 2019.

Buying a home can help lower your tax bill. In fact, tax breaks for homeownership are a primary motivation for many people to buy their own home.

To get the maximum tax benefit from your home purchase, it's important to understand what's available to you.

Keep these tax deductions for homeowners in mind when you purchase a home.

The interest and property tax portions of your mortgage payment are deductible

Your house payment includes both interest and principal payments.

You may also pay insurance and property tax payments to your mortgage holder. They, in turn, pay those amounts to the appropriate entity when they're due. When required, you may also pay other charges, like insurance premiums.

You can generally take a tax deduction for the interest paid to your bank or other lender. You can also deduct the property tax your lender pays on your behalf. Starting in 2018, however, tax reform imposed a cap on the amount of state and local taxes you can deduct, which includes property taxes. The majority of filers can now only deduct up to $10,000 in property and income or sales tax on their 2020 tax returns.

Private mortgage insurance premiums are deductible

Private mortgage insurance (PMI) is coverage your lender may require you to buy if you put less than 20 percent down when purchasing your home. It protects the lender against your default. If you itemize and the insurance contract was issued after 2006, you can deduct the amount of your PMI.

Once your adjusted gross income (AGI) exceeds $100,000, the deduction starts to phase-out ($50,000 for married filing separately). The phase-out requires you to subtract 10 percent from the total premium amount you paid for each $1,000 of your income that exceeds $100,000 (or $50,000 for married filing separately). If your AGI is above $109,000, the deduction is eliminated entirely ($54,500 if married filing separately).

It's important to understand your total itemized deductions only benefit you if they are greater than the standard deduction.

Filing Status	Standard Deduction
Single or Married Filing Separately	$12,400
Head of Household	$18,650
Married Filing Separately or Qualifying Widow(er) with dependent child	$12,400
Married Filing Jointly	$24,800

The standard deduction is higher if you are blind or at least 65 years of age.

Don't overbuy a house to gain tax benefits for homeowners

No amount of tax deductions justifies buying a house extremely outside of your budget. If you can't hang on to the house by comfortably making the payments each month, it then becomes a not-so-great investment.

Make sure you buy a house you can afford without undue financial stress. Home purchase tax deductions you claim later should only be looked at as a bonus.

Consider all the reasons you want to buy a house before you do it

Buying a house can be a great way to build equity and eventually own a property free and clear.

It protects you from having a landlord raise your rent or sell your home out from under you. Plus, not having to rent a place makes any house feel more like your "home". It's always nice to not have to ask permission to paint the kitchen any color you want.

The tax benefits of buying a house help tip the scales toward homeownership, if that's what you want. Tweet this

There's no right answer to whether you should buy a house or keep renting, however.

Consider all the economic and noneconomic reasons you want to buy a house before you sign the dotted line. The choice to purchase a home is one of the most important decisions of your financial life.

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How Much Interest in Ahouse Dip You Get Back on House Taxes

Source: https://blog.taxact.com/homeownership-tax-breaks/

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