Have you considered the tax benefits that occur when you get a new home vs. a resale home? One of the biggest perks of homeownership is the tax deductions that you can take advantage of. A few factors distinguish your newly built home from a resale home when it comes to tax filing and you should understand the difference. While both feature great benefits, a newly built home will give you a bigger tax break. Here is a look at why this happens.
Construction loans on new homes
Many homeowners have to take out a construction loan to cover the work that takes place with the home’s construction work. This ends up converting into the home mortgage after the construction is complete but you can still deduct the interest you pay during the first 24 months of the loan.
The deduction can’t always apply because the rules state that the home has to be your primary or secondary residence and it only applies to loans of the first $1million in loan proceeds and only the first $500,000 for married couples.
Speaking of mortgages, mortgage deductions are a big part of getting a better return on your taxes. They occur for interest, mortgage points and insurance premiums. You can deduct your mortgage interest up to $1 million or $500,000 if married.
Prepaid interest equal to 1% of the mortgage’s value is considered a mortgage point and can be purchased at the time of the original loan. These are tax deductible the year they are paid. Finally, qualified mortgage insurance premiums are a part of mortgage interest which means you can deduct within the $1 million limit.
You can deduct property tax and resale homes usually have lower property taxes. Newly built homes can deduct the property tax incurred while still in the initial building phase.
Finally, keep in mind that many new homes are going green. Energy credits are available for newly built homes that are energy efficient and this can reach up to 30% of the cost of installation. All high-efficiency products qualify as a tax credit. For these reasons and more, newly built homes are going to offer a better tax benefit than a resale home.
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