If you are wondering whether or not to purchase a farm, this information might help give you the incentive. Let’s start at the beginning.
Mortgage Interest is tax deductible!!!
This is major considering almost all other forms of personal interest are not. We have the Tax Reform Act of 1986 to thank.
Regardless of your interest rate or what type of mortgage you have, you can normally claim all interest paid. Remember that in the first years of any mortgage, most of the mortgage payment made each month is applied toward interest.
To claim the mortgage interest deduction with the government, you must file a Schedule A, Itemized Deductions form.
To do this, you should receive a form 1098 from your lender each January for the tax paid that prior year. This form contains information on the amount of interest you paid.
The IRS has, however, separated mortgage interest into acquisition indebtedness and home equity indebtedness. As always, get professional advice on how to file this form along with how you can best take advantage of the mortgage deduction rules.
Next tax benefit of home ownership is the Real Estate Property Taxes.
These taxes are fully deductible. If you pay your taxes in your mortgage payment, money held in escrow toward the payment of your taxes is not deductible, but the actual payments from the escrow account toward the property taxes are.
And one little tip that’s not always shared is that you can sometimes receive is a Property Tax Reduction. This is when you have your farm revalued by the government for a lesser value, thereby reducing your overall taxes.
This is another huge benefit that you will never get from renting.
Last item to discuss is Points paid. Points are percentages paid at closing to often reduce your interest rate. To deduct points, the following must be met:
- The points paid must be for your owner occupied property or main home;
- The mortgage loan must be used to buy or make improvements to your home;
- Points paid must be normal for the area you are in;
- Your cash down payment must be equal to or less than the points charged; and
- Points paid must be clearly indicated on your closing settlement statement.
What does all this mean for you?
It means that you get tremendous savings on your yearly tax return while building equity in a property at the same time. Purchasing a home should be worthy of some serious consideration.