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Question:


What are the tax advantages to owning a home?
-ApartmentLiving


Answer:


A big one is the deduction for mortgage interest. Generally speaking, as long as you itemize your deductions and have an outstanding loan balance of no more than $500,000, or twice that for married couples, you can write off every penny of interest. That means every penny of payments on an interest-only mortgage, of course, although there are other factors unrelated to taxation that can make this type of loan a bad idea.
 
The tax savings can be substantial on a conventional 30-year mortgage, too, as most of a homeowner’s payments in the early years are devoted to interest. Say you take out a $300,000, 30-year mortgage at 5 percent. In the first year your payments will total just over $19,300, of which $14,900 is interest. If you’re in the 25 percent bracket for federal income tax and 8 percent for state tax, that’s a savings of nearly $5,000. But again, you must itemize. If you have no other deductions, then your savings would be reduced by the amount of the standard deduction that you would take otherwise: $5,700 for 2009 if you’re single or twice that for married couples.
 
Another tax break of homeownership comes in the form of mortgage credit certificates. These are granted by some state and municipal governments to low-income residents in an effort help them buy homes and to bolster local real estate markets. The certificates allow homeowners to reduce their federal income tax liability by a portion of the amount they pay in mortgage interest.
-Conrad de Aenlle



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