One of the reasons you feel one of our San Joaquin Valley homes is better for you financially than renting is the tax savings. The following are some of the important deductions that you get for buying a home.

Mortgage interest is probably something you already know is a tax deduction. It forms a large part of your monthly payment during the early years and is deductible on up to a million-dollar loan. This deduction diminishes slowly over the years as more of your monthly payment starts consisting of principal rather than interest. Your lender sends you a Form 1098 in January to tell you how much of your payment consisted of deductible interest.

Points are the fees that you might pay a lender so you can obtain your mortgage. They usually represent a percentage of the total loan.

Real estate taxes. Your home’s property may also be part of your monthly payment when they go into an escrow account so that the lender pays the tax at the end of the year. These taxes are deductible.

Private Mortgage Insurance, or PMI, does not insure you but, rather, protects the lender in case you default on the loan. This fee is added to your monthly payment if you put less than 20 percent down on a mortgage. When you’ve paid enough on the mortgage so that the balance falls below 80 percent, then the lender eliminates PMI from your payment.

IRA withdrawals typically incur a 10 percent penalty if you’re under 59 ½ years old. However, at any age, you can withdraw up to $10,000 from your IRA in your lifetime without penalty if you’re buying a first home for you or members of your immediate family. You’re considered a first-time buyer if you haven’t owned a residence in the past two years. Note that while the lack of a penalty may be considered a tax break of sorts, the withdrawn money is still taxed at your top bracket as income.

Withdrawals of contributions to a Roth IRA are always tax-free because of the income tax you’ve already paid. If you withdraw $10,000 as a first-time homebuyer, such disbursements are also penalty free.

Home equity loans. Once you have enough equity in your home, you can borrow on it with a home equity loan. You can use that loan to finance any large expense, such as college tuition. The interest you pay on the loan is tax deductible.

Home improvements that increase the value of your new home, such as backyard landscaping cannot be deducted in the year you spend for them. However, you can add their costs to the purchase price of your home when you sell to increase the cost basis. This basis is subtracted from the final purchase price to determine your profit, which is taxed. The higher your basis is, the lower the profit and the lower the tax. Note that a repair, such as fixing a leaky faucet or repairing a broken window, does not count as an improvement and cannot be added to the cost basis.

All these amounts are deductible from your federal tax but not always from your California state tax. Always consult a tax expert to clarify what you’re entitled to, especially if this is the first year that you’re using homeowner deductions.

If you want to know more about the financial perks of buying a new home, or want to view some of our developments, please contact us.