Tax Breaks for Homeowners
Save Money With These Tax Breaks
If you are a homeowner, your home could be a great asset when it comes to doing your tax return. To encourage homeownership and energy conservation, the government provides several tax breaks geared toward homeowners. Using these tax deductions and credits can save you money on your taxes and can often lead to a healthy tax refund.
Here are a few tax breaks you may be eligible for if you are a homeowner:
Mortgage Interest and Points Deduction
The interest and points you pay on your mortgage are tax-deductible. The interest must be on the original mortgage for purchasing your home or refinancing for home improvements – if you refinanced your home in order to pay off a car or other expenses, the interest on the extra loan amount is not deductible.
Points are also deductible on your tax return. If you paid points when you originated the loan, you can use them for a tax deduction the first year. For points on refinance loans and home equity lines of credit, the points would be spread out over the life of the loan, but they are still deductible. Your mortgage company should send you a tax form with your paid interest and points for the year.
Deduct Casualty Losses Affecting Your Home
Did you have extensive losses due to theft, vandalism, or Mother Nature’s wrath? If you had repairs that were paid out-of-pocket and not covered under insurance, you may be able to deduct these losses on your tax return. Water damage, roof repairs, tree removal, and many other expenses can be expensive – minimize your loss by deducting them on your tax return if they are over 10% of your adjusted gross income (AGI).
Energy-Efficiency Home Improvements
If you had home improvements during the tax year, you could have tax credits you can use on your tax return. Many upgrades to your home that will help improve the energy efficiency have a tax credit. This includes insulation, window, doors, furnaces, heat pumps, and roofing. The improvements must meet the Energy Star or EPA standards required by the IRS, so check to make sure they qualify.
Energy-efficient improvements are one of the few tax credits for homeowners. Keep in mind that tax credits are more beneficial than tax deductions since they are applied directly to reduce your tax due (instead of lowering your taxable income like deductions).
Deduct Property Taxes
The money you pay for property taxes to the local and state government can be deducted on your tax return, along with sales tax. If you buy large ticket items for your home, make sure to keep the receipts. Even if you use the simple method to calculate your sales tax deduction (a percentage of your income), you are allowed to add the sales tax paid on large ticket items like a new hot tub, entertainment system, or other big purchases for your home.
Overall, you should make the most of your tax options for owning or buying a home. Consult your tax professional to ensure you are taking advantage of every tax break available for homeowners on your next tax return.