Owning a home completely helps in reducing your tax burden. The remarkable tax benefits of owning a home is that your rental income will not be taxed. It is valued as a return on investment as from stock markets and other savings accounts. Rental income falls under this category and will not be taxed.
How imputed rent works?
A person buying a house out of his own money is purely an investment and all benefits gained out of that investment are non-taxed as per law. This imputed rent has reduced the federal revenue by about 121.3 billion during the fiscal year of 2019 alone. Homeowners can deduct mortgage interest and property tax payments from federal income tax when they clearly itemize their deductions.
Homeowners who have itemized their deductions have the chance to reduce their taxable income. This is an effective chance to transfer the federal funds to jurisdictions that can force property tax either by local or state governments.
All these deductions can really help owners who have higher tax brackets. The Comparison Analysis states that lower tax brackets are benefitted only a little, while the owners with higher tax brackets get more benefits. The difference between lower and higher tax brackets happens because of these three factors:
- Comparing with low-income homeowners
- More income also can face high marginal tax rates
- Tend to pay more mortgage interest and property taxes
These are some of the reasons that people tend to itemize their deductions on tax returns. So, claim the tax benefits of being a homeowner now!