You need to build your home the right way to take advantage of tax benefits.
Having a new home built is one way to avoid the costs of renting, setting up yourself and your family for years of residence in a house that is designed to suit your needs. Building a new home generally costs more than buying a similar existing home, but building can have tax benefits that help even out the cost and make home building a financially responsible option.
Mortgage Deductions
A mortgage loan is one of the requirements for having a home built. It means that, on top of the cost of construction, which represents the loan's principal, you'll also need to pay closing fees and interest on the loan. When you have a home built, you can deduct the interest you pay on your mortgage each month from your taxable income at the end of each year. The amount you can deduct varies based on your income, the type of mortgage you have and the interest rate your lender charges. However, mortgage interest tax deductions can provide a significant savings on your federal income tax and make building a home that much more affordable.
Efficiency Credits
Tax credits for energy efficiency are another source of tax benefits when building a new home. These credits apply when you install energy-efficient appliances and fixtures in your home, which cost less as part of the initial construction than they would if retrofitting them in an existing home. They can include a heating system that uses low amounts of electricity, windows with superior insulation and solar panels on your roof to provide your home with free electrical energy from the sun. The U.S. Department of Energy oversees efficiency credits, along with the Internal Revenue Service. You can consult with your builder to learn about which types of products qualify for tax credits and still fall within your budget range.
Property Tax Advantage
Another tax advantage of building a home is paying your own property tax based on the home's assessed value. While this might seem like a new tax if you were a renter before having a home built, local governments actually charge property tax on rental property as well. Your landlord likely paid property tax on your unit and passed the cost onto you as increased rent, shared among all tenants. By paying your own property tax on your home, you will pay only what you owe. If you choose to build a smaller home that's big enough for your family, you won't face the higher property taxes that would apply to a luxury home. You can also choose which community to build in to take advantage of the lowest property tax rates.
Tax Drawbacks
Building a home can have tax drawbacks that you should weigh carefully against the advantages. While it can be a source of overall savings, property tax can also be an added expense if you build in a county or school district with high property tax rates or if you choose to build a large home in anticipation of a growing family. In addition, tax credits and deductions vary from year to year based on changes to the tax code. This means that the mortgage interest deductions available today might not apply in a few years when you're still paying off your loan.
Related posts
You can estimate the home-building cost per square foot.When assessing the overall cost to build a new home, it all comes down to the price you pay per square foot. Construc...
Refinancing a mortgage or purchasing a house is likely the largest debt you'll ever assume. As such, it's important to think long-term when considering home financing. In some cases, you can keep...
The average cost of building a house varies greatly due to the number of options and contributing factors. In 2009, most houses cost between $80 and $200 per square foot to build. The average cost...
There are few things in life that are as rewarding as designing and building an addition onto your home. It not only demonstrates your creativity but it will provide you and your family with more...
Adding a window by means of a skylight or dormer provides natural lighting to cut electric costs.Along with the floor, the ceiling is the most expansive area in the house, yet it is often never ev...
