How to Save on Taxes When Building Your Home

Building a home is not cheap. In fact, a house is often the most expensive investment people will ever make. Because of this, many potential homeowners avoid the upfront expense by just settling for an already-built home. While building is expensive, though, it can also be the best investment you ever make. Plus, there are many surprising strategies to save on taxes along the way!

Loan Interest 

Perhaps the most beneficial tax savings strategy you can implement when building your home is a loan interest deduction. With a mortgage interest deduction, the interest that you pay on your loan can be deducted from your taxes. This reduces the total amount of taxes the homeowner owes to the government. In some cases, construction loans and their interest can also be deducted from taxes for the first two years of the loan. While building a home is a major investment, the interest you accrue in paying off your home can help you save on state and federal taxes.

Energy Efficient Features 

It is no secret that installing energy efficient features in your home will save you money. Systems that use less electricity significantly lower the cost of your utility bills. However, an energy efficient home also provides tax benefits. As the world pushes for eco-friendly living, governments are rewarding homeowners that make environmentally friendly decisions. For example, with a solar energy system you not only generate your own energy with the option to sell back what you do not use, but you also receive a tax credit for the solar panels. Federal tax credits are worth 26% of the cost of your solar system.

Mortgage Insurance 

Many loan offices require you to purchase mortgage insurance premiums. If you make a down payment of less than 20% of the home’s value , you will be required to purchase mortgage insurance. The good news, however, is that the IRS allows you to write off your mortgage insurance premiums on Form 1040. Mortgage insurance should not be confused with homeowner’s insurance policies, of course, which are also required by many lending agencies.

Building your home is a huge investment to undertake. While the financial responsibility associated with building can be stressful, the freedom and autonomy experienced are worth it. Help ease the associated financial burden and tax requirements with smart tactics like writing off loan interest, mortgage insurance, and using energy efficient features.

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