Every year as we prepare to file our income taxes the first step to take is to learn about the current tax breaks. The National Association of Realtors have worked to extend and add many of the tax benefits that homeowners will enjoy this season. Disclaimer – This is a small summary of current tax issues. If you need tax advice, please contact a tax attorney or CPA!
Mortgage Interest Deduction
The ability to deduct interest for first-time homeowners is one of the most popular tax benefits. For the first couple of years new home mortgage payments are mostly interest, resulting in a substantial reduction of tax liability! Itemized deductions let you claim the interest paid on a mortgage. Americans save $100 million each year by deducting mortgage interest on their returns.
Home Improvement Loan Interest Deduction
The definition of ‘Capital Improvement’ is: The addition of a permanent structural improvement or the restoration of some aspect of a property that will either enhance the property’s overall value or increases its useful life. Although the scale of the capital improvement can vary, capital improvements can be made by both individual homeowners and large-scale property owners. Home equity loan interest used for this can also be a tax deduction. Expanding your house repairs from natural disasters to upgrading, all count as capital improvements. Up to $100,000 the interest is tax deductible!
Private Mortgage Insurance Deduction
If your down payment was less than 20% you typically pay Private Mortgage Insurance. PMI can cost anywhere from a couple of dollars a month to hundreds. This can be a large portion of many homeowners’ mortgage payments. The extension of this tax deduction in 2013 was one of many last-second saves by real estate industry advocates.
Energy Efficiency Upgrades or Repairs
Homeowners can deduct building material costs if they’re used for energy efficiency upgrades. This is a tax credit, that’s applied directly to how much tax you owe. Ten percent of your total bill for energy-efficient materials can be used as a tax credit, up to $500.
Profit on a Sale of Real Estate Deduction
If you’ve sold your home in the past year you can claim up to $250,000 of profit from the sale tax-free! Even better, if you’re married you can claim up to $500,000. For this deduction to be valid that you must have lived in the home, as your primary residence, for two of the past five years.
Home Office Deduction
Common knowledge says that the home office tax deduction can increase your likelihood of being audited. However it’s really the way a home office is deducted that gets some taxpayers into trouble. To claim this deduction you need to calculate the percentage of mortgage, utilities, and repairs using the proportion of your home that is dedicated to your office.
Property Tax Deduction
Did you know property taxes are deductible? This means that you don’t pay income tax on money that was spent on property taxes! Make sure you are only deducting the amount that was paid to your local municipality, it shouldn’t include and city or county fees.
Loan Forgiveness Deduction
The Mortgage Debt Forgiveness Relief Act of 2007 was created to help homeowners that were upside down in their mortgage. The short sale amount is viewed as taxable income (a gift from the lender to the borrower). Make sure to seek the advice from your CPA or attorney and check every corner of your house to help alleviate your tax burdens!