Yes it is that time of year again, tax season. Homeowners you do not want to miss out on these tax deductions! And if you are a soon to be homeowner you soon can take advantage of these tax deductions, so get ready to take notes!
There are a multitude of tax deductions available to homeowners. The main ones being:
Equity Loan Interest
Home Improvement Loan Interest
Home Office Deduction
Capital Gains Exclusion
Mortgage Tax Credit
While this list may not include all of the available tax benefits provided by owning real estate, we hope to cover the majority of the benefits that most American homeowners may be entitled to.
10 Tax Deductions
1. Mortgage Interest
Any Interest that is paid towards your mortgage is tax deductible up to a certain limit. If you are filing married jointly, you can deduct all of the interest up to a maximum of 1 million dollars of mortgage debt secured by a first or second home. Cut that in half for taxpayers that choose to file separately. If your loan requires PMI or Private Mortgage Insurance, that PMI is deductible for any loans after 2006. That is however based on your income for that tax year.
Points are fees that mortgage lenders charge for the entire loan process. One point is equal to one percent of the principal of the loan balance. For the majority of home loans, 1-3 points or percent is typical. Sometimes this is called an origination fee, but the majority of the time these points are deductible. While 1% may not seem like much, when you are dealing with a home that might cost 500,000 dollars, you are talking about $5,000!
3. Equity Loan Interest
As a homeowner, the option to take out a HELOC, or Home Equity Line of Credit is available to you depending on the amount of equity you hold in your home. The IRS does however place a limit on this and it is the smaller of: $100,000 ( $50,00 or each member of a married couple if they file separately), or the total of your home’s fair market value minus certain other outstanding debts against it.
4. Home Improvement Loan Interest
If you were to take out a loan to make improvements to your home you could deduct the interest on that loan with no upper dollar limit. The requirements for this are that the improvements must be for Capital Improvement, and not just everyday maintenance. Some examples might include things like: new roof, fence, pool, garage, porch, insulation, HVAC, and landscaping. Things that add value to the home.
5. Property Taxes
Property Taxes are often referred to as “Real Estate Taxes”. These can be placed by the city or state in which the home resides. These taxes are fully deductible from your income.
6. Home Office Deduction
If you use a portion of your home for business only, you might be eligible to deduct some home expenses related to that portion of the house.
7. Selling Costs
Real estate commissions, title insurance, legal fees, advertising costs, administrative costs, escrow fees, and inspection fees are all example of selling costs that can be deducted. Depending on the amount of Capital Gain that occurs during the transaction these might not be necessary, or they can be used to decrease the taxable amount of capital gains you incur after the selling process.
8. Capital Gains Exclusion
Married taxpayers who are filing together can now keep, tax free, up to $500,000 in profit from the sale of a home that was used as their principal residence for at least two of the prior five years. This is calculated differently for single people, and people that own a home together yet do not file taxes together.
9. Moving Costs
If you have to move because of a new job, you might be eligible to deduct some of those moving costs. In order to qualify, several criteria must be met. The new job must be at least 50 miles from your current home, and things like transportation, lodging, and storage might be able to qualify.
10. Mortgage Tax Credit
There are some home buying programs available to low-income, first-time homebuyers that can benefit from a mortgage interest tax credit of up to 20% of the mortgage interest payments made on a home. The amount of the credit depends on the jurisdiction in which the home is located. This type of credit is subtracted directly from the income tax owed for filers who qualify.
Consult a professional
While this should hopefully be a benefit for homeowners. Keep in mind that you should always consult a tax professional for any tax related information.