Owning a home has big benefits when it comes to paying taxes. There are two major tax deductions that your home will give you on your tax forms. You do not get this money on your taxes; instead, you can deduct certain expenses relating to your home on your income tax documents. Using these deductions will lower your taxable income and reduce your tax liability.
Tax Savings Vary
There is no average amount that you will save. Your home-related deductions include the interest that you paid on your mortgage and the amount of property taxes that you paid during the calendar year. To figure out how much interest you will be able to deduct each year, go to an online mortgage calculator and plug in the amount of your loan, the interest rate and the length of your loan -- for example, 30 years. The calculator will amortize your loan and show you how much interest you pay each month and year for the duration of the loan.
Discount Points Help
If you paid discount points to reduce your mortgage rate, the amount you paid is also deductible, as discount points are up-front interest. The amount you paid in discount points must be deducted in the tax year that you purchased the house. Discount points are a one-time tax deduction.
Refinance Discount Points
If you refinance the house and pay up-front discount points, then the discount points can only be deducted on a prorated basis. In other words, if you refinance into a 15-year mortgage and pay $6,000 in points, you will be able to deduct $400 from your taxes every year for 15 years. This is in addition to the regular interest and property tax deductions. You can also deduct interest payments made on a home equity loan.
Finally, there is the capital gains tax advantage to owning a home. If you bought your house for $150,000 and sold it later for $300,000, your capital gain would be $150,000. At the time of publication, the law allows a single person to earn up to $250,000 in capital gains without incurring a tax liability. If you are married or own the home with another person, each owner can claim up to $250,000 in capital gains for a total of $500,000.