Tax Deductions as a Homeowner
Just a friendly reminder: Tax day is looming, April 15th! With tax season upon us, it's the perfect time to explore the various tax breaks awaiting homeowners like you.
Most tax benefits come in the form of deductions, effectively reducing your taxable income. This is advantageous because the lower your taxable income, the less you'll owe in taxes.
Before delving into available deductions, let's differentiate between standard and itemized deductions.
A standard deduction allows you to reduce your taxable income by a set amount, whereas itemized deductions entail tallying up eligible expenses to offset your taxable income, potentially reducing your tax burden. As a homeowner, it's wise to compare your itemized deductions against the standard deduction to determine the optimal route.
Now, let's delve into the assortment of tax deductions accessible to homeowners:
Mortgage Interest: This deduction encompasses the interest paid on your home loan annually. It's among the most common and lucrative deductions, particularly beneficial for new homeowners, as initial mortgage payments predominantly cover interest. Depending on your filing status, you can deduct mortgage interest payments on the first $75,000 to $1,000,000 of mortgage debt. Additionally, interest on home equity loans or second mortgages is deductible, capped at specified limits.
Necessary forms: Mortgage Interest Statement (Form 1098).
Mortgage Points: Purchasing mortgage points, or discount points, upon buying a home can lower your mortgage interest. Each percentage point paid upfront can potentially reduce your interest rate, translating to savings over time. The IRS treats these points akin to prepaid interest, allowing you to include them in your mortgage interest deduction.
Required documents: Closing documents.
Property Taxes: Deductible local and state real estate taxes, or property taxes, can be claimed on your taxes. Although the deduction limit has decreased post-2017, you can still deduct up to $10,000 combined from property taxes and state/local income taxes.
Essential form: Property Tax Statements.
Energy-Efficient Tax Credits: Making energy-efficient upgrades to your home may render you eligible for tax credits. These credits encompass two categories: residential clean energy credit and energy-efficient home improvement credit.
Documentation required: Home improvement receipts.
Home Office Exemptions: If you utilize a portion of your home regularly for business purposes, you may qualify for home office deductions. These deductions are also available to renters. The standard home-office deduction can range from $5 per square foot up to 300 square feet.
Documentation needed: Home office expenses.
Capital Gains Tax Exclusion: When selling your primary residence, you may qualify for a capital gains tax exclusion if you've resided in the property for at least two of the past five years. This exclusion typically amounts to $500,000 for married joint filers or $250,000 for single or separate filers.
Essential documentation: Capital gains and losses records.
Maximize your tax season with these homeowner deductions! While filing taxes might not be the highlight of your year, leveraging available deductions can certainly ease the process. For further inquiries about refinancing or home purchases, reach out to me!
Note: This information should not be considered as legal or financial advice. It's advisable to consult with a tax professional or financial advisor.