3 Ways Your Mortgage Affects Your Annual Taxes
A new home isn’t just a purchase, it’s also a tax advantage for you! Let’s explore how a mortgage affects your annual taxes. Did you know you can deduct parts of your mortgage from your annual taxes? Let’s take a deep dive into how this works for you. Get in touch with our team to learn more!
1. Deduct Mortgage Interest
You can reduce your taxable income by deducting the interest on your mortgage. Currently, deductions are limited to interest paid on up to $1,000,000 of debt incurred to purchase or substantially rehabilitate a home.
2. Deduct Property Taxes
You can reduce your taxable income by deducting your property taxes! That deduction is a way of transferring federal funds to cities and states which impose a property tax, and allows the local government to raise property tax revenue at a lower cost to their constituents.
3. Tax Example for Mortgages
Family A rents a three-bedroom, two-bath home for $1,200 per month. In addition, they pay for all the regular maintenance including gardening service, minor repairs and snow removal. Family A’s tax deduction would be $0.
Family B buys the same house, at $170,000, with an FHA mortgage. With a 3% down payment and 4% interest rate, the monthly mortgage would sit around $1,100; this includes taxes, insurance, and private mortgage insurance. A tax deduction could reduce your taxable income by almost $12,000 for the year.
There are many tax advantages to choosing a mortgage over renting. Contact us to learn more about how a mortgage affects your annual taxes, or speak with our Sentry Bank mortgage experts to find the right loan options for you and your budget!