The dust from the holidays has barely settled before the minds of many turn to that dreaded topic: taxes. Counting down the days until the middle of April when a large tax bill may be due, many Americans spend the beginning of each year wondering what they can do over the next twelve months to reduce their tax bill the following year. With 2011 over and done, and the new year already underway, what will you do in 2012 to give yourself a tax burden break come 2013?
Luckily, there is much about homeownership and taxes that go hand in hand, and thanks to a variety of government incentives for homeownership, buying a home this year can make a huge difference in the amount of taxes you’ll pay next year. Here’s how:
Most homeowners—particularly brand new ones—see the bulk of their monthly mortgage payments go toward interest. While this may be hard to stomach, this is actually brilliant for most people’s finances, as 100 percent of that interest is deductible from your yearly federal tax bill. That means that each dollar you spend on paying off interest on your mortgage directly cuts your taxes due, on all mortgages up to $1 million!
Another large part of your monthly mortgage payment goes toward property taxes. This expenditure, too, is tax deductible, further reducing your tax bill.
In addition to these tax breaks, homeowners are also eligible for a break from capital gains taxes on profit seen from the sale of their primary residence. This means that if you sell your residence and make more money on the sale than you owe (or that which you paid), you pocket that money tax-free. This capital gains exemption is good for up to $250,000 in gains for single filers, and $500,000 for married people filing jointly. Note that you have to own the sold property for at least two years before selling it to enjoy this exemption, so best to start your homeownership legacy now!
As you can see, the benefits of homeownership can greatly affect the tax bill that you’ll face next year. And the earlier in 2012 that you become a homeowner, the sooner you can start counting your mortgage payments toward a tax deduction in 2013. So while others muddle through and watch their tax bills grow, owners in fine new home communities like those built by LGI Homes are enjoying all of the personal and functional benefits of homeownership, along with the financial boons of tax deductions and tax-free earnings that only owning a home can bring.