It’s no telling that buying a home can be expensive. And the costs don’t end once you receive the keys to the house because you have to pay for the mortgage, insurance, property taxes, and maintenance periodically for the long run. But did you know that you can get tax savings as a home buyer/homeowner? This article tries to break down everything you need to know about residential property tax benefits in Georgia.
How Much Tax Do You Pay When You Buy a House in Georgia?
Well, it’s not really “when you buy a house” because if there’s anyone taxable in a real estate transaction, it’s more of the seller. But once you “become a homeowner,” you’ll have to pay the annual property tax.
Generally, there are five main factors that a county considers when calculating property taxes. These are your home’s fair market value, assessed value, local millage rate, and the homestead tax breaks you are qualified for.
Fair Market Value = $163,000
Assessed Value = $ 125,000 (76% of Fair Market Value)
Local Millage Rate = 4.195 mill
Homestead Exemption = $1,000
We calculate it as [(Fair Market Value*76%) – Homestead Exemption]*0.04195. Hence, your payable property tax in this example is $5,154.816.
What are Real Estate Tax Credits and Deductions?
Don’t be confused between tax credits and tax deductions because these are two different terms. Tax credits are subtracted from your outstanding tax payable and reduce the amount of tax you owe. For example, if your tax payable is $5,145.816, and you have a tax credit of $2,100.000, then your final tax payable is $3,045.816.
On the other hand, tax deductions are subtracted from your federal taxable income before your final tax payable is calculated. For example, if your original taxable income is $25,000 and you are eligible for a tax deduction of $1,000, then your final taxable income is $24,000.
How Do Tax Credits Work in Real Estate?
The homestead exemption is an example of a tax credit. It is granted to homes where the homeowner is officially and legally living in it. You need to apply for the homestead exemption, and you will have a higher chance of approval if you are:
- 65 years or older
- 62 years or older (claim exemption to repay school debts)
- A disabled veteran or surviving spouse
- A surviving spouse of a U.S. Service Member
- A surviving spouse of a firefighter or peace officer.
The amount of your homestead exemption will vary depending on your qualifications. Nonetheless, no regardless of how small or big the value is, you’ll go home with some extra cash which you can use to pay for a great night out, a cozy pizza and Netflix evening, overdue bills, and whatever upcoming expenses you have.
Different Tax Benefits for Home Ownership in Georgia
The deadlines of property and income taxes in Georgia are set every 20th of December and the 15th of April, respectively. Some counties also have earlier deadlines, so it would be best to validate with your tax commissioner.
Even if there are still months to go before the deadline, it will save you plenty of stress if you already know what credits, deductions, and exemptions you can qualify for. Some, like the homestead exemption, still need for you to register and require you to go with a graduated/itemized tax rate.
So here are the different tax credits and deductions that you can ask your county tax commissioner’s office about.
Through the Tax Cuts and Jobs Acts (TCJA), itemizing taxpayers (who are also homeowners) can deduct the value of their total mortgage interest for the year from their taxable income. This can be applied to your first and second residences.
You can deduct your monthly premiums from your taxable income if you’re paying for private mortgage insurance (PMI). The catch here, though, the deductible value will depend on your income bracket. This means that if your total insurance premium for the year is $1,165 and your income bracket only allows you a 20% deduction, that means that your final mortgage insurance deduction will only be $233.
Your mortgage points deduction can be availed through a mortgage interest deduction.
If you’re thinking about making your home eco-friendly, congratulations because you can get tax credits for it. The energy tax credit applies to residential properties that use solar electric power, solar water heaters, geothermal heat pumps, small wind turbines, fuel cells, and qualified biomass fuels.
Solar Reviews provides a solar tax credits and incentives calculator that helps you estimate how much federal, state, and locals incentives you can get. You can click on the picture below.
Homes that serve as the homeowner’s principal place of business are eligible for tax deductions. The deduction is either based on your actual expenses or per square foot. You can check out your possible deductions here.
Home renovations for medical purposes are also considered a medical expense. These include ramp installation, electrical fixtures adjustments, exterior landscape grading, chairlift installation, and widening of cabinets, door, and hallways — everything that makes your house more PWD-friendly.
- Tax-free Profits On Your Home Sale
Because of the Taxpayers Relief Act of 1997, qualified homeowners who wish to sell their house can be exempted from capital gains tax of up to $500,000.
- Rental Income Deductions
There are certain rental expenses that you can deduct from your tax return. This could include your operating expenses, repairs, and depreciation. Learn more about what other rental deductions you can qualify for through the Internal Revenue Service.
When buying a home, it’s important to consider how much you will pay for it in the long run. At HomeSold GA, we can help you find and buy the house that fits your needs and budget. We can also guide you through some of the tax incentives you can apply for so you can maximize your tax savings wherever your home is in the Peach State. Don’t hesitate to reach out to us at 770-668-4888, or feel free to leave us your contact information through the form below.