How Do USDA Rural Loans Work For Home Ownership

USDA Rural Loans
How Do USDA Rural Loans Work For Home Ownership

A USDA Rural Home Is Money In Your Pocket!

USDA rural loans for a home ownership mortgage is still one of the best tax breaks simply for owning and living in your own home.

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Here’s How USDA Rural Loans Work

When your itemized deductions are more than the standard deduction, you can subtract the extra from your taxable income.

You pay less tax, which is money in your pocket.

The fact is, your rural development home is a source of many itemized deductions.

Your biggest deductions usually come from first mortgage interest payments and Real Estate taxes.

If these two items total more than $800 a month, you’re probably over the annual standard deduction already.

By adding on medical expenses, charitable contributions, and other itemized deductions, you’ll get an even bigger tax bonus.

But wait, there’s more you can deduct!

In fact, Gerald J. Robinson has written an entire book, J. K. Lasser’s 1001 Deductions and Tax Breaks 2017:  Your Complete Guide to Everything Deductible (afflink), on the subject.

Here are some things he suggests:

  • Convert To Home Equity. Interest on home equity loans counts against taxable income. These loans are based on the value of your home less the amount of your mortgage and other liens. You must use your home as collateral and can only deduct interest on the first $100,000. You can use the money to pay off your credit cards, buy a new car, take a vacation, or whatever else you want. As long as the loan is secured by your home, the interest you pay is a tax deduction.
  • Earn More With A Home Office. If you work at home, then a portion of the house (office, workroom, storage) that you use for business is deductible. You can also add a percentage of utility bills, insurance, and depreciation to your business expenses. Remember, if you claim any depreciation on your rural development home as a result of your business, when you sell, that portion of the gain will be taxable. When your home is your principle place of business, you can deduct transportation costs when you leave to call on clients. You can also write off the full cost of home office equipment.
  • Buy A Second Home. Mortgage interest and Real Estate taxes on second or vacation homes are the same deduction as your main residence. If you rent it out for less than 15 days a year, all the income is tax-free. More than that is subject to formulas and computations. Your vacation home becomes income property if you rent out and don’t use it yourself. It still can be a valuable tax shelter, but there are different rules. Rental property can be your old house, your future second home, or just a house you buy for an investment.
  • Trade Down For Retirement Funds. Your home can even be a source of income for your retirement if you trade down. That means sell the house and buy something smaller and less expensive. The old capital gains rules have changed so that for married couples, up to $500,000 profit on your house is not taxable at all, as long as you have lived in it at least two years. Or, you can take out a reverse mortgage, which is like a home equity loan and use the money for retirement. Learn more about reverse mortgages to gain extra cash from your home.

The capital gains rule is also helpful for homeowners who buy in a rapidly appreciating neighborhood, say for two years, and then cash out at a higher price.

The same goes for you if you’re a handyman.

Buy a rural development fixer-upper (that’s livable of course), improve it to increase its value, and sell.