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Module 5
Life as a Homeowner
Benefits of Home Ownership
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Did You Know
  • There are a variety of financial benefits to being a homeowner.
  • Prepaying your mortgage can mean significant savings over the term of your home loan.
  • Home equity should be used cautiously.
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Tax Incentives

One of Your Biggest Financial BenefitsTax advantages are one of the biggest financial benefits of home ownership. As a general rule, most homeowners can deduct most or all of their interest payments on their home loan, property taxes and loan points, but check with your tax advisor about your situation.

  • Mortgage interest — the interest paid on a home loan is usually tax-deductible and can mean real tax savings. The tax savings are particularly significant in the early years of the home loan when most of the monthly payments go towards interest payments. Interest on first and second mortgages, home equity loans (up to $100,000) and refinanced loans are all usually deductible.

    Homeowners should receive a statement from their lender (called a Form 1098) by the end of January each year, which lists the mortgage interest paid during the previous year. This is the amount that can potentially be deducted. If you itemize your deductions, check to see whether the standard federal deduction for you is larger than your mortgage interest deduction. Take whichever deduction is larger.

  • Property taxes — property taxes, also called real estate taxes, may be deductible in the year they’re paid. They are generally reported on Form 1098 or on your county real estate tax assessment statement. You should also ask your tax advisor about deducting any prorated taxes you paid when you closed on your home. These amounts are not always included on Form 1098, but may be itemized on your real estate closing statement.

  • Loan points — many homeowners pay points to the lender when they buy their home. These points can usually be deducted as a prepayment of interest. Loan origination fees and loan discount points are also usually deductible. Check with your tax advisor for more specifics.

  • Homestead exemption — this law, offered by some states, allows a property owner to exclude a fixed monetary amount from the assessed property value for tax purposes, thus reducing the property tax owed. Homestead exemptions apply only to a person’s primary residence. In some states the exemption is automatic; however, in other states you must file a claim for the exemption.
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