What To Know About Taxes As A Homeowner
Home ownership carries latent costs in the form of taxes and ongoing maintenance. However, there are also some tax breaks available to those who own a home. There is a common misconception that it is more financially prudent to rent, especially for transient millennials, as renters are not subjected to property taxes. The truth is landlords adjust the price of rent in accordance with property taxes. So do not assume paying several thousand dollars per year in property taxes is reason enough to continue renting. You will pay for property taxes through monthly rent or your mortgage payment regardless of whether you decide to buy your own home or continue renting.
The mortgage interest deduction is one of the primary benefits of owning a home. Tally up the mortgage interest you pay throughout the year and deduct it from your taxes. Mortgage service agents are supposed to provide clients with a 1098 tax form by the last day of January. This form serves as the guide for deducting your annual mortgage interest. In some cases, it is even possible to deduct interest on refinanced mortgages depending on the issue date and debt limitations.
What to Know About Local and State Property Taxes
Plan on spending at least a couple thousand dollars or even $10,000 or more in local and state property taxes. The county and state you reside in determines your property tax rate. These funds are used to pay for the local school system and government services such as the fire department, police, snow plowing, etc. Starting last year (2018), the property tax deduction for combined local and state income was capped at the $10,000 threshold. Most homeowners were unaffected by this change as the majority of homeowners pay annual property taxes below this limit.
Property Tax Exemptions
There are certain situations in which homeowners are tax exempt from property taxes. The nuances of property taxes and exemptions differ by town and state. Be sure to check with the local tax assessor to determine if you are eligible for a property tax exemption. As an example, some military veterans qualify for tax exemptions. Exemptions might also be available for those who renovate or build a home for an elderly parent or grandparent. Some jurisdictions have homestead exemptions that decrease homeowner property taxes.
Worried About Property Taxes? Get an Estimate Before Buying
Do not put in an offer on a home unless you are sure how much you will have to pay in terms of property taxes. You can find out your annual property tax bill by using a property tax calculator. As noted above, the best way to get an accurate prediction of your yearly property tax bill is to reach out to the local tax assessor’s office. Once you have your estimated property tax bill in-hand, you will be able to budget accordingly and cap your bid at a certain number.
A Quick Note About Itemizing Tax Deductions
There are plenty of tax deductions available for home owners to take advantage of during the tax filing season yet it might not be prudent to take any of them. The tax rules changed in 2018. The standard deduction has spiked to $12,000 for those who file as single. Joint filers’ standard deduction is now $24,000. As a result, a married couple that files taxes jointly will need more than $24,000 worth of itemized deductions related to owning a home in order to justify making the deductions in the first place. It might make more sense to eliminate the itemized mortgage interest and property tax deductions in favor of the standard deduction.