What are the tax benefits of Homeownership?
You are the proud owner of a new house and want to know about tax benefits. Of course, you have acquired a mortgage loan to be able to purchase your dream house and now you are thinking of all the taxes you have to pay as an owner besides the mortgage loan. Good news, you can use all the tax incentives at hand for they can save you thousands of dollars. And this advantage comes on top of being an owner, own a dog, painting your walls in the colors you love, and changing the floor plan as you please (as long as you follow the Code).
Mortgage Interest Deduction tax benefits
The most important perk in terms of tax deductions when purchasing a home is the possibility to deduct all the mortgage interest up to $1 million or up to $ 100K if we are talking about home equity loans. The Same rule applies to second homes as well, as long as you spend more than 14 days or 10% of the time than this second home is rented out. This tax deduction can mean saving thousands of dollars especially in the first years of your mortgage loan when interest makes the biggest chunk of what you are paying. Just to make sure that things are crystal clear, you cannot have tax deductions on the principal of your mortgage loan.
“Points” Deduction on Your Mortgage tax benefits
If you paid points (1 point = 1% of the total loan) to get a lower interest rate than you are also entitled to a tax break. If you meet all the IRS qualification requirements you will be able to deduct the points all at once, in the same year you paid them.
If you pay points when refinancing your loan you are also eligible for this tax deduction but the amount paid will be, in most cases, spread over the lifetime of the loan. The Same rule applies for home equity loans or lines of credit used for work on the house. If you secured the loan with your vacation house or second residence, you can also deduct the points over the entire life of your loan and not in one-shot.
Property Taxes tax benefits
Check if your property or real estate taxes deductible on your federal income tax. Most of the time, they are if your local authorities calculate these taxes taking into account the value of the houses within the area. Don’t forget to use for this deductions the 1040 Form.
You cannot have it all. It’s either having the state and local income tax deduction or having the state and local sales taxes deduction. In order to take an informed decision use the IRS’s tables showing how much you can deduct on sales taxes depending on the state of which you are resident.
If you use a portion of your home for business, you may be able to deduct some expenses. These expenses may include utilities, insurance, repairs, and depreciation and of course mortgage interest. It’s not easy to calculate all these deductions but don’t be lazy; it’s worth doing.
Energy credits tax benefit
You can benefit from a 30 percent tax credit of the cost of alternative energy equipment that you installed. These are included equipment: solar electric equipment, wind turbines, and solar water heaters. If your credit exceeds your tax, you can carry the unused portion into the next year tax return.
You can also claim a credit for 10 percent of the cost of energy efficiency improvements you made to your house, such as exterior windows, doors and skylights, roofs and roof products and insulation, but no more than $500, with a limit of $200 if windows are the only improvement you have made.
Until the end of 2016, you were entitled to a tax credit for residential energy property expenditures that included: air conditioning systems, water heaters, and biomass stoves.
For all products mentioned above, you need a written certification from the manufacturer that their product qualifies for this tax credit. Usually, such information is posted on the company’s site and included in the same package with the product.
- Medical home improvements tax benefits
The cost of permanent improvements you have made to your house to accommodate your disabled condition, your spouse or your dependents that increase the value of your property is tax deductible. Be careful, for not all the improvements increase the value of the house. We can mention here some of the modifications that are not considered to improve the value of the house, so they are not deductible under medical home improvements: building entrances or exit ramps, widening or modifying doorways (at entrances/exits and interior) and hallways, perform the necessary modifications to bathrooms, modifying stairways and kitchen cabinets and/or equipment, etc.
In the end, one extra piece of advice. Use all the tax advantage that you can – thousands of dollars, a couple of hundreds or even less than $100, these are all your money so don’t waste these opportunities.
Contact me today to discuss pre-approving for a home loan.