Use Your Home to Lessen Your Tax Bill
Since it’s that time of year when everyone is scrambling to do their taxes and also find receipts for deductions, we thought we would help you to score deductions based on your home. Read on to learn more and save on your taxes this year.
The tax code allows homeowners to deduct the mortgage interest from their tax obligations. For many people, this is a huge deduction since interest payments can be the largest component of your mortgage payment in the early years of owning a home.
Some Closing Cost DeductionsThe first year you buy your home, you’re able to claim the points (also called origination fees) on your loan, whether they’re paid by you or by the seller. And because origination fees of 1 percent or more are common, the savings are considerable.Property tax deductions
Real estate property taxes paid on your primary residence and a vacation home are fully deductible for income tax purposes.Home equity line deductions
In addition to your mortgage interest, you can deduct the interest you pay on a home equity loan (or line of credit). This allows you to shift your credit card debts to your home equity loan, pay a lower interest rate than the horrendously exorbitant credit card interest rates, and get a deduction on the interest as well. Living in Omaha can be a smart move when you utilize tax breaks.
This one’s tricky, but it can lead to big savings. If you paid points for a refi, that amount is tax deductible. But remember, you have to spread that cost out over the term of the loan – and only take a credit for the adjusted amount each year.
About that second home
You can also claim a mortgage interest deduction on a second home. Don’t forget to adhere to this guideline: You can only write off the interest of the total mortgage debt of BOTH your first and second homes up to $1.1 million. Property taxes are also deductible.
Host a Short Rental
If you rent out your second home for less than 14 days, that income is all yours and not taxable. And even if you go for the big bucks – renting for $5000 or $10,000 a week – it still stays in your pocket. But if those guests want to stay past 14 days or you rent for more than 14 days total during the year, all that rental income is now taxable.
Capital gain rebates
If you buy a home as your primary residence to live in for more than two years, then you will qualify for this tax break. When you sell, you can keep profits up to $250,000 if you’re single, or $500,000 if you’re married, and not owe any capital gains taxes. It may sound ridiculous that your house could be worth more now than when you purchased it, considering these past few years of falling prices, but if you purchased your home any time prior to 2003, chances are it has appreciated in value, and this tax benefit will come in very handy.
You can deduct the cost of home improvements required for medical care for you, your spouse, or dependents. For example, these are some items that qualify: entrance ramps, installing railings, adjusting the height of electrical fixtures to accommodate wheelchairs, and sometimes, even adding a Jacuzzi tub, if it’s recommend by a doctor.
Work from home?
Do you have a room or a specific area of your home that is designated exclusively for your home office? Under the new tax rules, you simply deduct $5 per square foot of designated home office space – that’s up to 300 square feet. Do the math, and you’ll find the rules allow you to deduct up to $1500.
Energy efficient rebates
New energy-efficient improvements can save you two ways: Not only are you knocking down your utility bills, but Uncle Sam gives you thumbs up in the form of a tax deduction. If you make any significant improvements to your home that contribute to higher energy efficiency, like installing new double-paned windows, attic insulation, a new roof, or new exterior doors, you can deduct up to 10% of the cost (up to a maximum of $500). If you upgrade to any energy-efficient equipment, you get a credit of 30% of the cost. Check with your accountant to see if there are state tax breaks in addition to these federal ones.