Buying a house comes will some serious tax advantages, but did you know that there are more tax advantages for buying new construction properties than for existing homes? Here are three of the big ones:
Deduct Interest from Construction Loans
When you build a home, rather than taking out a traditional mortgage, you can get a construction loan. This loan covers the costs of building and eventually converts into a normal mortgage.
As long as the home you are building is a primary or secondary residence, you can deduct the interest that you pay on a construction loan for the first two years. Be aware though, if you plan to build a more expensive home, this deduction is limited to the first $1 million in loan proceeds.
Take Advantage of Energy Efficiency Tax Credits
Have you heard of the Residential Energy Efficient Property Credit? It allows you to get tax credits for certain energy efficiency improvements. In new construction properties, however, high-efficiency products are usually included. So, new construction buyers can generally take advantage of these tax credits without doing any improvements.
You can save even more, however, if you choose to go more “green” than what is standard. If you choose to add solar panels to your home, for example, you can claim up to 30% of the cost. Eligible windows and skylights can also be claimed.
Deduct Property Taxes While a New Home is Being Built
If you build a new home, you are able to deduct the property taxes you pay while the home is under construction. The taxes must have been paid in the same year, though, and must be based on the property’s assessed value.
You Still Enjoy the Tax Benefits of Owning a Home
In addition to these benefits, you will receive the same tax advantages that buyers of existing homes enjoy. These advantages include deducting mortgage interest, mortgage points, and private mortgage insurance (PMI).
Keep in mind that most of these benefits will only apply to you if you choose to itemize your taxes rather than take the standard deductions. Since the standard deduction was recently raised, fewer people are itemizing than in years past.
While many of the tax benefits of buying a new construction property versus an existing home overlap, you will likely enjoy more benefits when you build or purchase a newly constructed home.
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