It is no secret that buying a home offers many financial advantages over renting. Namely, purchasing a home allows you to build equity toward an investment rather than paying off someone else’s mortgage in the form of rent. One financial benefit that is often overlooked, however, is the fact that homeowners bring with it a number of tax perks that can help to reduce your overall tax burden each year. Here is a look at some of the best tax benefits associated with homeownership in Hawaii.
Mortgage Interest Deduction
The mortgage interest deduction is one of the biggest tax benefits you enjoy as a homeowner. Every time you make a payment toward repaying your mortgage loan, you are also making a payment toward the interest that you owe from the loan. This interest can add up to thousands of dollars each year. Thankfully, tax code allows you to deduct what you paid toward interest from your taxable income, thereby reducing your overall tax burden. Current code allows you to deduct up to $750,000 in mortgage debt for as long as you have a mortgage. It should be noted that you can only enjoy this benefit if you choose to itemize your deductions. Depending upon the deductions you have, it may be more beneficial for you to choose the standard deduction instead.
Capital Gains Exclusion
If you choose to sell your home, you can take advantage of the capital gains tax exclusion. When selling assets, taxpayers typically have to pay capital gains tax on any profits they made from the sale. If you have lived in the home for two of the most recent five years at the time of sale, however, you can keep up to a certain amount of your profits without having to pay capital gains tax. If you are single, you don’t have to pay capital gains taxes for up to $250,000 in profits, while married couples do not have to pay on up to $500,000.
Property Tax Deduction
If you do choose to itemize your taxes, you can also take advantage of the property tax deduction. While you can no longer deduct the full amount of your property taxes as you once you to be able to do, you can still deduce up to $5,000 if filing as single or married filing separately or up to $10,000 if filing as married. Under the most current guidelines, you can deduct a combination of property taxes, state and local income taxes and sales taxes so long as it is below the $10,000 or $5,000 limit.
Of course, it is always a good idea to keep an eye out for credits that come along on a regular basis. Credits are the most valuable tax benefit because they apply dollar-for-dollar against your tax liability. It is not unusual for credits for installing eco-friendly items or for making other types of home improvements to be added for a short period of time, so be sure to take full advantage of these credits that are only available to homeowners.
