Making an Alabama home purchase is one of the best investments that you can make. It’s the first push on the way to financial independence and building wealth. However, there are also tax incentives that should also be seen as huge advantages. What Alabama home purchase expenses are tax deductible?
The two major ways that homeowners can save are on interest expenses and capital appreciation.
Interest expenses on up to $750,000 of mortgage debt can be deducted from homeowners’ income taxes. There is a catch though. When homeowners itemize their deductions, they will pass up the standard deduction, which is $12,400 for individuals or married couples filing individually, $18,650 for head of household and $24,800 for married couples that file jointly.
Capital appreciation is the increase in value of the home. As the home grows in value, these increases are not taxed federally. Homeowners can exclude anywhere up to $250,000 in home appreciation when determining their capital gains.
The mortgage interest deduction is really the most valuable to most homeowners. For homeowners that itemize their deductions, the ability to deduct the interest paid on their home can make a huge difference in their tax burden. Homeowners can claim deductions for any interest that they pay on mortgages for home building, home purchase, or even home improvement loans.
In the new 2018 tax bill, HELOCs and home equity loans lost their tax-deductible status unless they are used for building or making major improvements to the home, making these types of loans far less valuable than a cash-out refinance. For equity debt that can be used for origination or home improvement the limit is $100,000, and any interest on the first $750,000 of mortgage debt on the first mortgage is tax deductible as well.
However, not every dollar of interest paid towards a mortgage can be deducted from your taxes. If your loan is under $750,000, the interest that you pay is typically going to qualify for tax deduction. Anything over that will not be deductible.
Use an Alabama home purchase to your advantage with these tax breaks.
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The Mike Carey Team – Offices Located in Foley and Orange Beach
316 McKenzie St., Suite 118
Foley, Alabama 36535
27250 Perdido Beach Blvd. #F3
Orange Beach, Alabama 36561