Buying A Home For Tax Deductions? 4 Questions To Answer First
Are you considering buying a house in order to get the income tax benefits? While there are tax advantages offered to homeowners that renters don't have, homeownership is a complex task that should be entered into thoughtfully. How can you ensure that your purchase, while fueled by tax considerations, is done for the right reasons? Here are a few things to consider.
1. Will You Benefit Enough?
It's true that homeownership comes with the possibility of tax benefits. But, for some taxpayers, these may not be as great as you want.
For example, you will need to itemize your tax deductions. However, the standard deduction for married taxpayers filing together is $25,900 (in 2022). So your combined deductions — including the home-related expenses and all other eligible expenses — must be high enough to give you a better return. Even if it's marginally better for tax purposes, is it worth the extra effort?
2. Have You Looked at Options?
Are you thinking about buying a home because you're tired of seeing a high-income tax bill every year? If so, make sure you've already considered and/or exhausted simpler methods of tax savings.
For instance, are you maximizing the use of tax-advantaged retirement accounts every year? And business owners have access to a variety of unique — and often more generous — retirement account choices, which may be an easier way to reduce taxes as much or more.
3. Have You Been Thinking About It?
Tax benefits could be a great excuse to pull the trigger on a home purchase you've already been thinking about. So, did your desire to buy property start with the potential tax savings, or is it something you've considered for other reasons? Are you financially prepared? Or are you willing to get financially ready? If this is what finally puts you over the edge on homeownership, it may be a good plan.
4. Are You Ready to Own?
Because homeownership is a big job, be sure you're ready to take it on. Tax benefits come once per year, but having responsibility for real estate lasts the entire year. You'll have to pay monthly and irregular costs, perform maintenance and repairs, clean and care for the property, and plan for updates. If you're not ready to take it on, the tax deduction may not be enough to warrant the purchase.
Where to Start
The best place to get help analyzing both the tax benefits and the potential challenges of becoming a homeowner is an experienced tax planning accountant in your state. With their help, you can answer these questions and find the best way to lower your tax bill — no matter what form that might take.
For more info about tax planning, contact a local company.