Tax Advice Middle Class Tax Shelters Everyone Can Use Many Dont

Tax Advice Middle Class Tax Shelters Everyone Can Use Many Dont

Tax Advice: Middle Class Tax Shelters Everyone Can Use,​ Many Don’t
Many people lose money for years to​ landlords because they mistakenly believe they cannot afford to​ buy a​ home .​
However,​ in​ most cases,​ these renters are where they are only because they are unaware of​ all their other options .​
Most people know that it's better to​ put your money into a​ house that you​ own than into a​ rent check you​ never see again .​
Some are aware that mortgage payments could actually be fairly close to​ what they currently pay in​ rent.

What few people realize are the​ tax benefits stemming from owning a​ home can actually save them hundreds of​ dollars each month .​
After taking into account these additional savings,​ which would you​ choose: giving up a​ large chunk of​ your paycheck each month to​ a​ landlord for a​ small apartment,​ or,​ for significantly less money,​ having not just your own home,​ but also the​ freedom to​ take your money out again in​ the​ future?

How Tax Benefits Work

Tax benefits from home ownership come in​ the​ form of​ deductions .​
Come tax time,​ the​ amount of​ money you​ spent on​ tax-deductible expenses related to​ your home financing (many of​ which are outlined below) is​ subtracted from the​ total amount of​ taxes you​ owe .​
Depending on​ how much you​ owe and how much you​ put into your home over the​ course of​ a​ year,​ home financing could actually result in​ zero tax liability .​
That means that your new home may actually bring you​ a​ refund check!

For example,​ assume you​ owe $12,​000 in​ taxes for the​ past year,​ and your mortgage payment is​ $1,​000 per month .​
In the​ early years of​ a​ mortgage,​ payments are usually almost entirely for the​ interest you​ owe on​ your home loan .​
Mortgage interest payments are tax-deductible,​ so from this one deduction alone,​ you​ now owe $12,​000 less in​ taxes—which brings the​ total amount you​ owe the​ government to​ zero .​
If your employer withholds taxes from your paycheck,​ you​ will receive a​ refund check for the​ tax you​ overpaid.

Tax Benefits for All Mortgages

- If you​ own property,​ then you​ pay property taxes .​
These are always fully tax-deductible.

- Points on​ a​ home mortgage are fully deductible.

Tax Benefits for New Mortgages

- as​ mentioned earlier,​ the​ payments you​ make in​ the​ early years of​ a​ home financing loan generally go straight to​ interest .​
The principal,​ or​ actual amount of​ the​ original loan does not start to​ go down until later in​ the​ loan period .​
This means that early on,​ you​ can deduct most,​ if​ not all,​ of​ an​ entire year of​ mortgage payments.

- Both late and early payment fees charged by your lender are considered interest and can be deducted.

- Many tax benefits available in​ the​ first year of​ your mortgage are not available later on​ .​
It is​ always a​ good idea to​ go over your situation with an​ accountant to​ be sure you​ do not miss any opportunities for savings .​
These first-year tax benefits include moving expenses and capital gains.

Tax Benefits for Refinancing a​ Current Mortgage

- If you​ are refinancing in​ order to​ make improvements to​ your property,​ then the​ interest is​ deductible .​
Anything that could reasonably improve your property value—from fixing the​ driveway to​ adding on​ an​ entire new story—counts.

- Interest on​ refinanced mortgages that are taken out for expenses not related to​ home improvement can also be taken as​ a​ deduction,​ but only within certain guidelines .​
Currently,​ the​ maximum deduction for the​ life of​ the​ loan is​ $100,​000 .​
(Married couples filing separately each have a​ maximum of​ $50,​000.)

- Points on​ a​ refinanced home mortgage are still tax-deductible in​ most cases.

Benefits Beyond Tax Savings

No one would complain over having a​ few extra dollars in​ their pocket .​
Not only can financing your home save money on​ your next tax return,​ but it​ can also save money on​ purchases made using money received from refinancing a​ mortgage (or simply money not lost to​ rent) .​
In fact,​ paying off credit cards after financing can be one of​ the​ smartest financial moves you​ can ever make—especially if​ you​ keep those cards paid off.

Consider that even the​ worst mortgage interest rates can be at​ least ten or​ twenty percentage points lower than those for the​ average credit card .​
People with poor credit are often better off with a​ higher mortgage interest rate if​ it​ means their other debt can be reduced,​ thereby bringing their credit score up .​
After re-establishing their credit,​ they can then refinance their home at​ a​ better interest rate.

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