There are many financial reasons that make home ownership a good investment but are you aware there are also many tax benefits associated with home ownership? That's right, there are tax write-offs associated with purchasing, improving and selling your principal residence. These tax breaks apply whether your home is a single-family residence, condominium, townhome, mobile home, or similar property. Let's look at a few of the opportunities to slash your income tax bill.

When purchasing your principal residence you get an immediate income tax write-off for the "points" or loan origination fee related to your home's mortgage loan. Additionally you can write-off the mortgage interest portion of your monthly loan payments as long as the loan is related to the purchase or improvement of your home (limited to $1,000,000 of debt for couples filing a joint return, or $500,000 for single filers). Homeowners can deduct the interest from a home equity loan (loans up to $100,000 for married couples) and the loan proceeds are not required to be spent on your home which means you have the opportunity to use that money for other reasons including paying off credit cards or student loans.

Are you considering installing energy efficient property in your home? There's are credits for that! Certain residential energy property is eligible for a 30% federal tax credit plus a 10% NM state tax credit for the cost of certain energy efficient property installed in your home, eligible equipment includes solar electric power, solar hot water heaters, geothermal heat pumps and wind turbines. There is no dollar limit on the federal credit, while the New Mexico credit is capped at $9,000, and if your credit is more than the income tax you owe, you can carry forward the unused portion of the credit to next year's income tax return.

Certain energy property is eligible for a 10% federal tax credit when installing energy efficient windows & skylights, exterior doors, heat pumps & central air conditioners, water heaters, and other property (dollar limitations apply depending on the type of property installed).

Are you ready to sell your home but concerned about the capital gains tax? Good news, if you've owned and occupied your primary residence for at least 2 of the last 5 years before the sale, married folks can avoid income tax on capital gains of up to $500,000 ($250,000 for single folks).

To illustrate the tax benefit associated with deducting the mortgage interest on your personal residence a mortgage payment of $1,200 per month would result in $9,970 of deductible interest payments the first year assuming a 4% rate. For a New Mexico taxpayer in the 25% federal tax bracket the tax the savings is over $2,980. However, if you are paying $1,200 in rent, you are missing out on that mortgage deduction. Pay off your mortgage, not your landlord's!

Due to various restrictions and conditions regarding these tax benefits, it is important to consult with your tax advisor.

--By Christine Esquibel Wright CPA, Partner and Rebecca Dieser, Staff Accountant
Beasley, Mitchell & Co., LLP

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