Homeownership Tax Breaks
Tax time is upon us again, but if you are finding yourself stressed out remember that many homeowner related costs are actually tax deductable. Make sure you’re not missing out on important home-related tax deductions. As always, please consult your tax advisor to find out which deductions apply to you, but here are some common deductions that may be beneficial to you.
Mortgage Interest Deduction
The interest that you pay on a home mortgage is usually tax-deductible. You are allowed to deduct interest on multiple mortgages, as long as they add up to less than $1 million. The one criteria being that the money was used for buying, building or home improvements. You should receive a “Form 1098″ from your lender which details how much mortgage interest you paid. To claim this deduction, you need to fill out “Schedule A”, under “itemized deductions” to record your interest deduction.
Home Refinancining Deductions
If you refinanced, you may be able to write-off the points paid for the new loan. But you’ll have to deduct them proportionately over the life of your loan. So, if your new loan has a 30-year term, you’ll deduct 1/30th of your points each year. A couple of things to consider: If you’ve refinanced before, and you have points from the previous refinance that you haven’t finished deducting, you can write off the rest of those points in the year you refinance.
Going Green Means Tax Benefits
Homeowners who make their homes more efficient with energy-conscious purchases may be eligible for tax benefits. A recent tax law change provides a tax credit to improve the energy efficiency of existing homes. The law provides a 10 percent credit for buying qualified energy efficiency improvements. To qualify, a component must meet or exceed the criteria established by the 2000 International Energy Conservation Code (including supplements) and must be installed in the taxpayer’s main home in the United States.
The following items are eligible:
• Insulation systems that reduce heat loss/gain
• Exterior windows (including skylights)
• Exterior doors
• Metal roofs (meeting applicable Energy Star requirements)
In addition, the law provides a credit for costs relating to residential energy property expenses. To qualify as residential energy property, the property must meet certification requirements prescribed by the Secretary of the Treasury and must be installed in the taxpayer’s main home in the United States. The maximum credit for all taxable years is $500 – no more than $200 of the credit can be attributable to expenses for windows. Read more from the IRS on how you may be eligible to receive this tax break.
Capital Gains On The Sale Of A Home
Once every two years, unmarried homeowners can profit from the sale of their home without having to pay taxes on the gains for up to $250,000, as long as the home was the seller’s primary residence for two of the last five years. Married homeowners filing joint tax returns do not have to pay taxes on up to $500,000 of the profits from the sale of their home.
Everyone has a different situation and you may actually qualify for other deductions you were not aware of, so always check with your tax professional. For information on taxes and being a homeowner, visit the IRS where you can learn more about Tax Information for Homeowners.
