The tax consequences of buying a home today
Florida residents who are thinking about buying a home should not do so merely for the tax breaks. This is because recent changes to the tax code may reduce a homeowner’s ability to lower his or her overall liability. For instance, it is necessary to itemize deductions on a return to write off mortgage interest and real estate taxes. Since the standard deduction went up, people may receive the same benefit whether or not they claim these expenses.
Furthermore, a taxpayer cannot deduct more than $10,000 in state or local taxes in a given year. Individuals who own a home can only deduct mortgage interest on homes valued at up to $750,000 if the mortgage was taken out after December 2017. Previously, homeowners could deduct interest on up to $1 million in mortgage debt and an extra $100,000 for home equity loan debt.
Those who are required to pay mortgage insurance could deduct that cost along with other mortgage interest. However, that is unlikely to be the case in 2018 despite the fact that the deduction was put in place retroactively for 2017. Generally, individuals are required to pay mortgage insurance if they couldn’t make a down payment of 20 percent when the sale closed. The insurance helps lenders cover losses in the event of a default.
Buying a residential property may allow a person to put down roots in a community and build wealth. However, it may not be a good idea to buy a home simply for potential tax breaks. This is because the tax code is subject to change at any time while a person owns real property.