The main reason many people decide to invest in real estate is to be able to own their own home. Some other people invest in real estate so they can have a second home to use for vacations or to rent out to other family members who need a stable place to stay. Many of these people do not realize the positive influence that residential real estate can have on income taxes.

Real estate can provide people with the opportunity to receive large tax breaks. These tax breaks can help homeowners get a bigger and better refund, or at least keep them from owing a lot of money each year. The government has allowed a variety of tax deductions that are only available to residential real estate owners to help encourage more people to buy homes.

One of the biggest tax breaks homeowners receive is the ability to deduct interest on their mortgage. Each year, homeowners can pay off all the interest they have paid on their home over the years. This is typically thousands of dollars for the average person, and all residential real estate owners can deduct up to $1 million in mortgage interest each year.

Another big deduction available to real estate owners is property taxes. Most states require homeowners to pay taxes on their property or land each year. In some states, this tax even includes vehicles, but taxes paid on homes and land can run into the thousands. Homeowners cannot deduct money paid in property taxes each year. There’s an added property tax bonus that many new homeowners forget about. The government allows new homeowners to deduct taxes the home seller paid in advance that were applied to their property tax liability. This amount of property taxes paid by the seller can be deducted by you, the new owner, even if you did not finance the seller.

In addition to allowing homeowners to deduct their property taxes and mortgage interest, the government also helps new homeowners avoid certain penalties. For most people who borrow against their retirement or receive some type of early payment from their retirement or pension plans, there is a tax penalty. This penalty is usually 10% of the amount paid out in addition to any taxes already deducted from the amount paid out. To help encourage new home ownership, some of these penalties can be avoided if the money is used to purchase a home. The government will allow up to $10,000 from retirement or pension plans to be disbursed with no additional penalties on top of the taxes already eliminated, as long as the money is used to buy a home.

The benefits of investing in a house are many. Although buying a home can be a scary first step for many first-time homeowners, the end result isn’t just having a place of your own. Now you can get a bigger tax refund each year or avoid having to pay a lot of money to the government just because you’re paying a mortgage instead of rent.