There are a lot of tax benefits to being a homeowner. If you’re looking to get the most out of your tax return this year, make sure you take advantage of all the deductions and credits available to you. Here are some tips to help you get started.
The mortgage interest deduction
This is perhaps the most well-known tax break for homeowners, and it can save you a significant amount of money each year. You can deduct the interest you pay on your mortgage from your taxable income. In the first years of your mortgage, you pay the highest amount of interest, the closer you are to paying off your mortgage, there is less interest on the loan. So, you get the best deductions at the beginning of your term.
The property tax deduction
Another key deduction for homeowners is the property tax deduction. This allows you to deduct the amount of property taxes you pay from your taxable income. Most likely your property tax will continue to increase with each assessment period, especially if you’ve had home improvements or additions to your property.
The home office deduction
If you use a portion of your home for business purposes, as many people now more than ever are working several days per week from home, you may be able to deduct a portion of your mortgage interest and property taxes as business expenses. Check with your tax preparer regarding claiming a percent of your overall yearly utility expenses including internet usage. This amount will be adjusted based on the actual square feet of your office space.
The energy-efficiency tax credit
If you make certain energy-efficient improvements to your home, you may be eligible for a tax credit. Check with your tax professional and the IRS regarding which energy-efficient products are included. Generally, solar panels, windows, doors, skylights, and roofs apply to the tax credit. Basically, products that improve how much energy you would save by replacing older windows, etc. with new, energy-efficient products. Plus, the benefit of spending less money each year of heating/cooling costs!
The capital gains exclusion
When you sell your home, you can exclude up to $250,000 (or $500,000 for couples) of the capital gains from your income. This exclusion can save you a significant amount in taxes if your home has gone up in value over the years.
Also, hold onto home improvement receipts of major renovation costs, these will reduce how much capital gains tax you’ve earned and have to pay taxes on after selling your home.
So, there you have it – five tax tips for homeowners. If you’re a homeowner, make sure to take advantage of these breaks and deductions; they could save you a lot of money come tax time. Keep these tax breaks in mind as you file your taxes this year and be sure to take advantage of them if you qualify. And if you need help filing your taxes or understanding what all of these terms mean, don’t hesitate to reach out to an accountant or other tax professional. Thanks for reading!