Monday, February 29, 2016
Homeowners Tax Deductions Can Save You $
Owning a home comes with some great tax benefits. In fact there’s a whole list of homeowner-related tax breaks. Homeowners already save an average of $3,000 a year in taxes from mortgage-interest and property-tax deductions. In December of 2015, Congress passed the Protecting Americans From Tax Hikes Act of 2015, extending many exemptions that were about to expire and making others permanent. But to take advantage, you first have to know what they are.
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 by itemizing your deductions.
Private mortgage insurance: Qualified homeowners can deduct payments for private mortgage insurance, or PMI, for a primary home.
Property Taxes: You can include state and local property taxes as itemized deductions. The amount of the deduction depends on when you pay the tax, paying property taxes earlier could have a positive impact on your return.
Capital gains on a home sale: Capital gains can be avoided when the gain from selling your personal residence is less than $250,000 if you are a single or $500,000 if you are a joint filer. You must have owned and used the home as a primary residence for at least two of the five years prior to the sale.
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, you can still deduct those points.
Energy-efficiency tax credit: You can take advantage of the 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 air-conditioning and heating systems.
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. (I'm not fond of this deduction for several reasons, although it is available).
Loan forgiveness deduction: If you’re the owner of a foreclosed or short-sale home, you can take advantage of mortgage-debt forgiveness so long as the debt was on your primary residence. For example you sell your home as a short sale for $200K but owe $300K and your lender forgives the $100K balance (which is otherwise considered ordinary income), you don't have to pay taxes on that forgiven debt.
For more tax tips, check out IRS Publication 530 for a list of what homeowners can (and cannot) deduct.
Considering buying or selling a home?
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