Buying a Northern Kentucky home is one of the most significant financial decisions you can make in your lifetime. Not only does it provide you with a place to call your own, but it can also impact your finances in all sorts of ways. One of the most significant ways that buying a home can affect your finances is through your tax return. In our most recent post, we will discuss how buying a Northern Kentucky home before the end of the year can impact your tax return and all of the advantages a home purchase can potentially bring you.
1. Mortgage Interest Deduction
One of the most significant tax advantages of owning a home is the ability to deduct your mortgage interest from your taxable income. When you buy a home before the end of the year in Northern Kentucky, you can deduct the interest paid on your mortgage for the entire year. This can significantly reduce your taxable income and lower your tax bill. The mortgage interest deduction can be especially beneficial for first-time homebuyers who typically pay more in interest in the early years of their mortgage. Be sure to find a tax professional here in Northern Kentucky to help ensure all filings are made correctly.
2. Property Tax Deduction
In addition to the mortgage interest deduction, you can also deduct the property taxes you pay on your home from your taxable income. When you buy a Northern Kentucky home before the end of the year, you can also deduct the property taxes paid for the entire year. This is another deduction that will significantly reduce your taxable income and lower your tax bill when you go to file. Keep all records readily available… this will make actually filing all the easier.
3. Closing Costs Deduction
When you buy a home, you will likely incur various closing costs, such as loan origination fees, title insurance, and appraisal fees. While these costs can be significant, they are tax-deductible. When you buy a home before the end of the year, you can deduct these closing costs from your taxable income, reducing your tax bill. These deductions are very welcomed after the purchase of your new Northern Kentucky home!
4. Capital Gains Tax Exemption
When you sell your home, you may be subject to capital gains tax on any profit you make from the sale. However, if you have lived in the home for at least two of the past five years, you may be eligible for a capital gains tax exemption of up to $250,000 for single taxpayers and up to $500,000 for married taxpayers filing jointly. By buying a home before the end of the year, you can start the clock ticking on the two-year residency requirement, making you eligible for the capital gains tax exemption when you sell the home. You will potentially be able to sell for a profit, quickly making money after just a short two-year span.
5. Energy-Efficient Home Improvements Tax Credit
If you plan to make energy-efficient improvements to your new home, such as installing solar panels or upgrading your HVAC system, you may be eligible for a tax credit. The Residential Energy Efficient Property Credit allows homeowners to claim a credit of up to 26% of the cost of qualifying improvements. By buying a Northern Kentucky home before the end of the year and making these improvements, you can claim the tax credit on your next tax return. These credits will add up, saving you a fortune on your taxes.
6. Home Office Deduction
If you work from home, you may be eligible for a home office deduction. This deduction allows you to deduct a portion of your home expenses, such as mortgage interest, property taxes, and utilities, that are related to your home office. By buying a home before the end of the year and setting up a home office, you can start taking advantage of this deduction on your next tax return.
Buying a Northern Kentucky home before the end of the year can have significant tax benefits. From the mortgage interest deduction to the capital gains tax exemption, owning a home can lower your taxable income and reduce your tax bill. If you are considering buying a home, you should consult with a tax professional to understand how homeownership will impact your tax return and to ensure that you are taking advantage of all available tax deductions and credits. The article above is provided for informational purposes only and shouldn’t be taken as legal or financial advice. Always consult a tax professional for assistance.
However, if you need help buying a home in Northern Kentucky, Tom Maldonado Real Estate has the knowledge, dedication, and ability to help you find your ideal property. Let’s work together so that you can buy a home before the end of the year in Northern Kentucky! Reach out to our office today! (859) 780-3000