Preparing to Buy a Home: What are Some Tax Breaks for Homeowners?

If you’re debating about whether to buy a house, consider the tax breaks you will receive as a homeowner. One way the government encourages homeownership is by offering borrowers three big tax breaks: the mortgage interest deduction, the property tax deduction, and in Indiana, the homestead deduction.

Mortgage interest deduction: Principal and interest comprise your monthly mortgage payment. When preparing your taxes, you can deduct the total amount of interest you paid to your mortgage company from your income. The lower your income, the fewer taxes you owe.

Property tax deduction: Many homeowners pay their property taxes by including monthly escrow payments with their mortgage payment. When the property tax bill comes due, the mortgage company distributes funds from the escrow account directly to the tax assessor. During tax season, your mortgage company will include these tax payment on your 1098 statement.

Remember, lender rules state that you must keep a “cushion” in your escrow account in case your property taxes rise, so be sure you only deduct the tax payments made to the assessor and not the payments you made to the account.

Homestead deduction: If you own a home or are buying on contract, and use it as your primary place of residence, your home—and up to one acre of land—could qualify for a homestead deduction. The deduction is either 60 percent of your assessed valuation or a maximum of $45,000. You cannot receive the homestead deduction in multiple states—only in the state considered your principal place of residence. 

Points deduction: “Points” is another way of saying “mortgage interest.” If you paid prepaid points when you closed on your home, that expense is also deductible.

If you’re ready to buy a home and take advantage of these tax breaks, call me at 317.777.1805, or email me at Scott@LacySells.com.