Tax deductions when buying a Newport Beach Home
Most people see home buying as a costly affair. For many, the first home is the single most important purchase they will make, as well as the most expensive. But what few of them realize is that it also offers opportunities to save. Buying Real Estate Newport Beach opens doors to all sorts of tax savings, which makes your purchase all the more worth it. If you are looking for ways to cut down on your Newport Beach home purchase, here is a quick guide to help you get started.
Mortgage interest
U.S. law recognizes interest as tax-deductible on mortgages of less than $1 million. This means the interest you pay on your mortgage can be taken off your yearly income. The law applies as well to second mortgages, so it is also good news for investors looking into Newport Beach homes. Of course, as interest usually goes down as more of the mortgage is paid off, the deductions are most significant in the first few years. Married couples can split the deduction by filing as single, as long as the amount does not go over $1 million.
Home equity
Many real estate Newport Beach owners eventually decide to remodel their property, and the best way to do this is with a home equity loan. The same law that makes mortgage interest deductible also applies to home equity loans, as long as they qualify as capital improvements those that add to the homes value. Adding a deck, updating the heating or cooling systems, or improving the exterior to your Newport Beach home can all be considered capital improvements and be taken off your taxes.
Points
A point is an amount paid up front, usually 1% of the homes value, that reduces the interest on a mortgage. Like the interest, points are fully deductible from your taxes. So by buying points at closing, you not only reduce the monthly payments on your Newport Beach home you also become eligible for further savings during tax seasons. It should be noted, however, that most loans allow no more than three percentage points.
Property tax
Local property taxes on Newport Beach homes can also be deducted from your gross income, whether they are held in escrow or paid personally. If you pay your Newport Beach real estate tax from an escrow account, the amount you paid should be indicated on the bank statement you will receive at tax time. If you are paying your own property tax, make sure to keep the receipts on hand so you know how much is deductible.
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