Every Homeowner Needs to Know About These Important Tax Breaks
Homeowners can receive decent tax breaks they should never miss. While your tax software or accountant may help you identify deductions and credits, there may be some areas of homeownership that perhaps you never considered.
While some tax breaks are a good fit for all homeowners, others may be very specific to your individual situation. Also, some of these tax breaks will change in the 2018 tax year because of tax reform, so make sure you consult with your tax advisor before claiming any tax breaks.
How do you know if you qualify for most or all of these tax breaks? Read on (bet you didn’t see No. 14 coming).
1. Itemize your deductions
It may be easier to just take the standard deduction, but homeowners will see a bigger break by itemizing, according to H&R Block. A standard deduction delivers a fixed reduction based on your filing status. But if you use the 1040A, you can itemize homeowner expenses like property taxes, points, home office, and more.
Next: This is something all homeowners should deduct.
2. Property taxes
You can deduct your property taxes for your main home, vacation home, land, and any foreign property, according to TurboTax. If you recently purchased a home, you can also deduct any taxes you paid to the seller before you took ownership too. The amount you paid should show up on the settlement sheet.
Next: You can deduct mortgage interest.
3. Mortgage interest
You can deduct the mortgage interest on any main or possibly second home, according to TurboTax. Typically, you can deduct all interest paid on your mortgage, which depends on the date and amount of your loan, according to the IRS. Estimate how much you can deduct using this calculator.
Next: You can also deduct interest on this loan.
4.Home equity loan interest
If your home qualifies, you may be able to deduct the interest on a home equity loan, TurboTax reports. An IRS qualified home equity loan is one that you have “ownership interest.” This does not include taking a home equity loan for a home you plan to build or buy.
The home equity debt must be confined to “the smaller of $100,000 ($50,000 if married filing separately), or the total of each home’s fair market value (FMV) reduced (but not below zero) by the amount of its home acquisition debt and grandfathered debt,” according to the IRS.
Next: Don’t forget about points.
The IRS usually lets homeowners deduct the complete amount of points during the year unless your home loan exceeds $1 million, according to TurboTax. You can deduct mortgage loan points on your main residence, as long as you use cash accounting on your taxes and is a typical business practice where you live. Your mortgage lender will provide you with a 1098 to show you how much you paid in points and interest.
Next: Don’t forget about insurance premiums.
6. Mortgage insurance premiums
Unless Congress renews this deduction, this may be the last year you can deduct mortgage insurance premiums, according to The Balance. Homeowners may deduct mortgage insurance premiums on loans taken out after January 1, 2007, on a primary or vacation home. You can only take this deduction if your adjusted gross income does not exceed $54,500 if you file individually or $109,000 for joint filers.
Next: Did you go green last year?
7. Energy credits
You may qualify for a tax credit if you made any home improvements to boost the energy efficiency of your home, USA Today reports. Qualifying improvements include windows, doors, and roofs.
Next: Were you impacted by one of the storms last year?
8. Casualty losses
Whether you were hit by one of the devastating hurricanes or experienced a catastrophic incident, you may be able to write off the damage, TurboTax reports. You must prove you are the owner of the home that was impacted by damage and let the IRS know of any reimbursement you received to cover expenses. You can claim your deduction using IRS Form 4684 for a federally declared disaster or simply itemize the loss on your tax form.
Next: Deduct expenses for these types of home improvements.
9. Medical home improvements
You can deduct the costs associated with making updates to your home for medical reasons, The Motley Fool reports. This might include adding ramps, new doorknobs to accommodate someone with arthritis, or even installing an elevator. You can only claim this deduction if the renovations don’t add value to your home too.
Next: Do you work from home?
10. Home office
You can deduct home office expenses, including square footage used for work, Mic reports. “You see a bigger savings if you deduct a portion of your mortgage interest, property taxes, utilities, rent or repairs,” Lisa Greene-Lewis, CPA and tax expert at TurboTax told Mic.
Next: Did you move?
If a new job prompted a move, you can deduct moving expenses, according to the IRS. Your move must be at least 50 miles from your previous residence and you need to be working full time for at least 39 weeks during the first year of employment. You may deduct travel expenses and costs to pack, ship and deliver your items too.
Next: Grab a deduction if you sold your home.
12. Selling your home
If you sold your home you can deduct a slew of expenses. “You can deduct any costs associated with selling the home — including legal fees, escrow fees, advertising costs, and real estate agent commissions,” Joshua Zimmelman, president of Westwood Tax and Consulting told Realtor.com. To receive this deduction you must have owned the home as your main residence for at least two years during the five years prior of the sale date, according to TurboTax.
Next: Sometimes home improvement expenses can be deducted.
13. Improvements made for home sale
While you typically cannot deduct home improvement expenses, you may be able to deduct costs to make your home more marketable, according to Realtor.com. This includes painting, adding a new roof, or updating the A/C unit, for example. “If you needed to make home improvements in order to sell your home, you can deduct those expenses as selling costs as long as they were made within 90 days of the closing,” Joshua Zimmelman, president of Westwood Tax and Consulting told Realtor.com
Next: You may deduct this if you had to temporarily move for work.
14. Utilities for a temporary move
Did you have to move away from home for a few months for work? If so, you may be able to deduct your temporary home’s utility costs while you are away, according to Zacks. So if you had a chance to work in China for three months, and your company didn’t reimburse you for utilities, you may be able to deduct the expense on your taxes. In order to be eligible for this deduction the re-assignment must be less than one year.
Next: Second homeowners may get this deduction.
15. Vacation homes
You may deduct mortgage interest and property taxes on your second home as long as it is not being used as an investment property, according to Efile.com. If you still want to deduct expenses for an investment property you must take income generated from the property into consideration first.
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