Saving Money at Tax Time…Some Common and Not So Common Deductions Every Homeowner Should Know About
Tax Day is approaching quickly and now is the time to take advantage of every deduction possible. As a homeowner, there may be more deductions than you thought! Here are some homeowner tax breaks you might not have known about:
- Mortgage interest deduction - If you’ve taken out a loan to buy a house, you can deduct the interest you pay on a mortgage, with a balance of up to $1 million. To access this deduction, you must itemize rather than take the standard deduction. The savings here can add up in a big way. For example, if you’re in the 25% tax bracket and deduct $10,000 of mortgage interest, you can save $2,500.
- Private mortgage insurance - Qualified homeowners can deduct payments for private mortgage insurance, or PMI, for a primary home. Sometimes you can take the deduction for a second property as well, if it isn’t a rental unit. However, this only applies if you got your loan in 2007 or later. Also, this deduction only applies if your adjusted gross income is no more than $109,000 if married filing jointly or $54,500 if married filing separately.
- Property taxes - You can include state and local property taxes as itemized deductions. An interesting note: The amount of the deduction depends on when you pay the tax, not when the tax is due. So, paying property taxes earlier could have a positive impact on your return.
- Capital gains on a home sale - The dreaded capital gains tax can be avoided when the gain from selling your personal residence is less than $250,000 if you are a single taxpayer or $500,000 if you are a joint filer. To qualify, you must have owned and used the home as a primary residence for at least two years out of the five years leading up to the sale.
- Medical improvements - If you’ve made improvements to your home to help meet medical needs, such as installing a ramp or a lift, you could deduct the expenses—but only the amount by which the cost of the improvements exceed the increase in your home’s value. (In other words, you can’t deduct the entire cost of the equipment or improvements.) These types of deductions can be tricky, but are worth looking in to. Guidelines for Medical Improvement Tax Deductions
- Home office - If you have a dedicated space in your home for work and it’s not used for anything else, you could deduct it as a home office expense.
- Renting your home out on occasion - If you rented out your home for, say, a major sports event like the Super Bowl or the World Series, or a cultural event such as Mardi Gras, the income on the rental could be totally tax free—as long as it was for only 14 days or fewer throughout the course of a year.
- Discount Points - Discount points which are paid to lower the interest rate on a loan, can be deducted in full for the year in which they were paid. If you’re buying a home and the seller pays the points as an incentive to get you to buy the house, you can deduct those points as well.
- Energy-efficiency tax credit - You can take advantage of an energy efficiency tax credit of 10% of the amount paid (up to $500) for any “green” improvements, such as storm doors, energy efficient windows and AC and heating systems.
For more tax tips, check out IRS Publication 530 for a list of what homeowners can (and cannot) deduct.