Tax Benefits of Building a New Home
In addition to the opportunity to create a home you’re truly excited to live in, home building offers tax perks, too!
Buying a home in today’s seller’s market can feel financially daunting, to say the least. Fortunately, those who opt to build their own homes can enjoy a few key tax benefits to help offset those up-front costs!
While some of these perks may apply to the purchase of existing homes, others are exclusively offered to those who are building new construction. Look out for these tax details as you plan and build your custom home.
Environmental Incentives
Building an eco-friendly home isn’t just good for your planet and your conscience. It’s good for your wallet too! For example, when you build a home that meets energy efficiency requirements like operating on energy savings of at least 50% compared to 2006, you’re eligible for a $2,000 tax credit.
There are also state and federal tax breaks for “green” home options like installing qualifying microturbine systems or solar heating. It pays to go green!
Mortgage Interest
As long as your new custom home will be your primary or secondary residence (not a rental property), you can write offthe year’s interest on your mortgage when it comes time to do your taxes.
Construction Loan Interest
When starting the custom home building process, most buyers take out a construction loan, which will later be converted into a conventional mortgage. On your taxes, you can deduct the interest you pay on your construction loan during the first 24 months — which, in most cases, is long enough to be the entire life of the construction loan before it’s converted.
State and Local Sales Tax
For this write-off, you’ll need to crunch some numbers to determine which option will get you the best savings. You have the choice of writing off your local and state income taxes, or writing off your state and local general sales taxes. Keep track of the amount of sales tax you pay for building materials as your custom home comes together. You can compare that to the total of your state and local income tax, and write off whichever number is higher.
Mortgage Insurance
If your down payment for your home was less than 20% of its value, it’s likely that you’ll have to pay mortgage insurance. Unlike most insurance, mortgage insurance unfortunately offers no benefit to you and is instead there to protect the bank. With most loans, once you’ve paid off at least 20% of the loan, you won’t have to pay mortgage insurance anymore.
Fortunately, mortgage insurance (unlike homeowner’s insurance) can be written off on your taxes.
Set aside time to talk with a tax professional to correctly file your taxes and make sure you’re getting all the deductions you qualify for! Other situation-dependent deductions may apply to your build, such as business write-offs if you work out of a home office or run a business from home.
Aside from the tax benefits, building a new custom home offers you the chance to ensure that your house and your lifestyle truly align.
Ready to get started? Get in touch with Atmos to begin your home building journey!
