There are a number of tax breaks that homeowners can take advantage of. The list includes mortgage interest, points, energy credits, and property taxes, among many other things. The reason for a lot of these tax breaks is to try and increase the homeownership rate in the U.S. People are not purchasing homes for several reasons, but the main reason being they just don’t feel they can afford it. Thus the implementation of the homeownership tax breaks is used to incentivize people to purchase homes.
Usually the main homeowner tax break is the deduction of interest paid on a home mortgage. This is a huge break to people as, depending on how high your loan is and how high your interest is, this could be a huge deduction on a homeowners tax return. A good example of this is, if a homeowner has a 30 year mortgage in the amount of $200,000 at current rates, they could have a deduction just on mortgage interest alone of up to $8,000 or more. This is a major benefit to owning a home.
Another tax break is when a homeowner buys a home and purchases points from the bank in order to get a better interest rate on their loan. Whatever the homebuyer paid to the bank for these points they can deduct on their tax return for the year that they paid for these points.
Energy credits are another tax break that homeowners can take advantage of. Now this is not a benefit that every homeowner takes advantage of and this is also more of a tax break to encourage energy efficiency of a person’s home as opposed to encourage the purchasing of homes, but it is still a huge tax break. Another thing that makes this very beneficial is that it is a tax credit rather than a deduction so you get an even larger break on your taxes.
Property taxes are the most common deduction related to being a homeowner. The reason for this is that some of the other tax breaks may not affect everyone. Not everyone is going to purchase points to lower their interest rate and not everyone is going to make energy efficient improvements to their home. Also, some people have no mortgage or have it paid off, thus have no mortgage interest to pay and ultimately deduct on their return. How much property tax you pay depends on the city you live in and also depends on the value of your home. For some, this can be a huge deduction on their tax return.
So ultimately, while renting may be a good option for many people financially, people also need to consider the long term tax breaks of owning a home. A monthly mortgage payment along with property taxes, insurance, etc. may seem like more than making a monthly rent payment, however, if you consider the deductions/credits that may be available to you, you may end up paying less in the long run as a homeowner as opposed to renting.