Tax Benefits of Owning a Home

Owning your own home does have its tax advantages but do not mistakenly think that you should be buying a home solely to reap the tax benefits.

You only get tax benefits on the home's mortgage, specifically the interest you pay. Since most homeowners cannot pay off their home all at once, they are forced to borrow money from the bank to finance the purchase of their home. This is known as a mortgage.

When you borrow money, the bank charges you an interest that you must pay. The amount of interest you pay is tax deductible. This means if you paid $5,000 in interest to the bank for your mortgage and you are in the 10% tax bracket then you will be able to save $500 since you effectively reduced your taxable income by $5,000.

This tax saving is not useful for everyone. For the tax savings to have any effect, you must itemize your deductions rather than using the standard deduction.

The tax deduction is only available on your personal residence. For those with rental properties, the mortgage interest can be deducted but is counted towards your expenses on your rental property's profit and loss sheet. There is a cap of $25,000 loss you can take on rental property losses unless you qualify as a real estate professional under IRS guidelines.