Tax Deductions For Homeowners
It seems like most of the time, people are talking about taxes in a negative light. But there's actually a lot of good news for homeowners out there! You can deduct your taxes if you own your home and have made any improvements or renovations since buying it. Here's what the IRS says about these common deductions.
Interest On Mortgage Loan
You can deduct the interest on your mortgage loan. In other words, if you own your home and have a mortgage, then you can deduct your interest payments for that loan (assuming you itemize deductions).
However, this deduction has some limitations — specifically regarding when it’s available and what kind of mortgage loans qualify for it. You can deduct the interest on a first or second mortgage: but only up to $750k if your primary residence was purchased before December 15th, 2017; otherwise, there's no limit!
You can also deduct the interest on an equity loan used to buy or improve your principal residence (up 2/3rds of its fair market value) as long as it does not exceed $750k.
The energy credit is a nonrefundable tax credit that can be used to offset your taxes for eligible expenses incurred to install or improve the property's energy efficiency. The credit cannot reduce your total tax liability to less than zero, and any unused portion will be lost.
You must file Form 5695 with your tax return to claim this credit. You may not claim both the residential alternative fuels credit and this one on the same property in the same year.
Home Office Deduction
If you have a home office, you may be able to deduct the percentage of your home used for business. You'll need to have a separate area of your home that you use exclusively for business purposes. You must not use it for personal reasons, such as an office where you work from home and then occasionally watch TV or read the mail there.
There are some special tax deductions that homeowners can take advantage of. One of them is the moving expenses deduction. When you move to a new home, you may be able to deduct the costs of getting yourself, and your family moved from one location to another.
- Moving expenses are deductible if you meet all three conditions below:
- You moved for a job or business reason (your employer did not transfer you).
- The distance test: Your new place of work must be at least 50 miles farther from your old home than your old job was from there.
The time test: You didn’t live in the same house or apartment for two years (730 days) before starting work at your new location, or if you did, some part of that time was spent working for two years (730 days) at least 50 miles away from where you lived before starting this new job/business.
Points (Interest Prepayment)
Points are an upfront fee you pay at closing in addition to your mortgage. Points are typically a percentage of the loan amount, so if you're getting $200,000 in financing and paying 2 points (2% of $200,000), that works out to be $4,000.
You can't deduct points from the first home you buy or from a refinance on your first home. But when it comes time to sell that house and move into a new one, all those old points come back into play: They're also deductible!
Real Estate Taxes
You may deduct your annual real estate taxes from your income.
Real estate taxes are deducted from the property's assessed value, which is based on its market value on January 1st of each year. You can deduct real estate taxes paid on any property you own—not just the one you live in.
Tax deductions are an amount that the government allows you to deduct from your income tax liability each year. The more deductions you have, the less tax you pay; in other words, it's basically free money! But don't go crazy with this because there is a limit on how much can be deducted. That being said, try to get as many deductions as possible because saving money is always good practice!
This is just a small sample of the many tax deductions you can take advantage of as a homeowner. The best way to know for sure which ones apply in your case is by speaking with a qualified professional who can advise on what will work best for you.
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