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What home buyers should know about taxes and mortgage

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The price tag placed on the home you desire is not the only financial consideration you should make when going through the home-buying process. The down payment and mortgage terms are also things to things to think about, especially if you plan on taking a loan to buy your home. 

The good news is that when using a mortgage to finance your home purchase, there are certain tax benefits attached to it that could buffer the pressure on your finances. 

It pays to know some useful mortgage facts that deliver the benefits like the ones below.

Mortgage points

Loan rates can actually go lower if you know how to use mortgage points. Also called by other names such as buying-down rate, discount point, or loan point, these fees are used to pay to the lender in exchange for a lower interest rate. 

Mortgage points usually constitute 1% of your total loan amount. It makes good financial sense to take advantage of these points because deductions can reflect within the year of payment. If you pay $4k for a $200k loan, that will be equivalent to two points paid upfront. These mortgage points can lower the interest rate of your mortgage from a percentage of one-eighth to one-quarter. You can decide to buy the points after you select a mortgage lender.  

Mortgage points offer two benefits: They lower the mortgage rate and they’re also tax-deductible. Getting these mortgage points is a good option for a home buyer who plans to live on the property for the long term.

Mortgage interest deduction

A common itemized deduction, mortgage interest deduction allows homeowners to shave off the interest they pay on any loan from taxable income.

The itemized deduction counts the interest that you pay a loan to purchase, build, or make improvements for your home. With certain limitations, this deduction can also be taken on loans for your second homes or vacation residences.

Under the Tax Cut and Jobs Act (TCJA) of 2017, the maximum mortgage principal eligible for the interest deduction is $750,000.

Property tax deduction

Most homeowners pay property tax to the local government. This particular tax is calculated based on the location of your residence and its fair market value. Proceeds from property taxes usually go to the funding of school districts, road construction, and other local basic services.

If you take the pains to itemize deductions, you can get a reduction in taxable income if you learn to deduct your property tax from federal income taxes.

The 2017 Tax Cuts and Jobs Act put a cap on homeowners’ property tax deductions. Because of this, a homeowner can get a deduction of $10,000 in state and local property taxes for those who are single, heads of the household, or married couples filing jointly. While the deduction for Meanwhile, married homeowners who are filing separately are given a $5,000 deduction.

To claim a property tax deduction, you can either itemize or take the standard deduction. Make sure to determine first which between the two will result in a lower tax bill.

The TCJA 2017 law increased the amount of the standard deduction to $12,550 for single persons or married couples who are filing separately. Meanwhile, the standard deduction for heads of households is up to $18,800. For married couples filing jointly, the rate is $25,000.

If you want to know more about how taxes and mortgage loans can work best for you in Georgia, get in touch with the real estate experts at The Muller Sales Group. Contact us at 678.568.9895 or send an email to robm(at)themullersalesgroup(dotted)com.