• Homestead exemption. Many states exempt owner-occupied homes (homesteads) from a portion of the property tax amount that would normally accrue. For instance, Louisiana exempts the first $75,000 of a home’s value from property tax assessments, so a $200,000 home in New Orleans is taxed as if it were worth $125,000. • Federal tax deductions. When you’re looking to purchase a home, it’s important to understand what can be deducted on your tax return and what can’t. Property taxes and interest paid on your mortgage can be deducted if you itemize your federal income taxes, which can reduce your income tax burden. Many home buyers, unfortunately, overlook the effect of mortgage interest on their federal income tax payments. Mortgage interest can be a powerful financial planning tool. Calculate the amount of mortgage interest deductions you are eligible for and include that in your annual financial planning. Then, make a point of checking Internal Revenue Service (IRS) Form 1098 which you’ll receive from your lender at the end of the year. This form shows the amount of mortgage interest that you’ve paid. The Tax Cuts and Jobs Act (TCJA) applies from 2018 to 2025 and limits the aggregate deduction for state and local real estate property taxes; state and local personal property taxes; state and local, and foreign, income, war profits, and excess profits taxes; and general sales taxes (if elected) for any tax year to $10,000 ($5,000 for marrieds filing separately). This limit does not apply if those taxes are paid or accrued in carrying on a trade or business or in an activity engaged in for the production of income. In other words, if you are just living in your home, you can only claim up to $10,000 in tax deductions on your property, but if you are earning income directly from your home in some way, the limit might be waived. Current mortgage rates are relatively low. Interest rates vary through the years. Several years ago, interest rates were higher, and it was more expensive to obtain a mortgage. Since these costs have been reduced, it’s now easier and less expensive to own a house. Ownership rights and creative freedom. Your decorating and home-improvement choices are just that — yours, provided they don’t break building codes or violate homeowners’ association rules. You
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