This is the only “holiday” season that doesn’t conjure up images of fun parties and tasty cocktails.
I say we change that!
As homeowners we have many reasons to celebrate and pop open a special bottle of champagne. The many tax benefits of homeownership are just one more reason to love your home, and one more reason I love my job as a Realtor.
FOUR REASONS TO TOAST THIS TAX SEASON
- You can deduct mortgage interest.
This is what people most commonly think of when they think of the tax benefits of homeownership. This rule allows you to deduct the amount of interest you paid on your mortgage (or up to two mortgages if you own a vacation home) from your taxable income. Your lender should send you a Form 1098 in January that lets you know the exact amount of interest you paid in the previous year.
- You can deduct real estate (“property”) taxes.
Again you should see this amount on the 1098 and it will include both state and local taxes. (If it is not on the form, contact your lender for the details.) In addition to this amount, however, you might be able to deduct the taxes that the seller paid before you took home ownership. Remember this is technically called real estate tax, which is very different than personal property tax. Personal property tax is a tax on moveable assets, like airplanes and cars. If you own a bunch of these, then right on! See what your tax guy can do about deducting those, too!
- You can deduct home equity loan (or line of credit) interest.
As with all of the tax rules, there are stipulations. With this deduction, you are limited to the interest on the balance of the loan up to $100,000.
- As a seller, you can get a Capital Gains Exclusion.
Basically you are free from paying any taxes on up to $500,000 if you are married, or $250,000 if you are single, of the profit you make from selling your home. Technically known as the home exclusion tax, the most important rule to qualify for this generous benefit is that you need to have lived in your home at least two of the five years before you sold your home. (A partial exclusion exists if you don’t meet this criteria.)
WHAT CAN’T YOU DEDUCT?
- Principal payments
- Homeowners association dues
- Homeowners insurance
- Title or mortgage insurance
- Appraisal fees
- Utility costs
- Repairs or improvements other than those for medical reasons
Remember that all of these deductions are only relevant if you itemize your deductions, rather than taking the standard deduction. In addition to the primary four tax benefits of homeownership I mentioned above, there are a few other deductions or credits that you might qualify for, such as the benefits for Alternative Energy Renovations (description below).
Lastly, this is just my take on things, and hiring a fabulous tax professional is always well worthwhile!
Tax Credits and Benefits for Alternative Energy Renovations: The residential energy-efficient property credit
“The residential energy-efficient property credit, intended to stimulate your investment in alternative energy equipment, allows you to include an unlimited amount of costs when calculating the credit.
When calculating the credit, include a percentage of the purchase price and the cost of labor for installation. Equipment that qualifies for the credit includes solar-electric panels, solar hot water heaters, geothermal heat pumps and wind turbines. The only purchases that have a maximum credit limitation are the costs paid to purchase and install certain fuel cells. As long as the manufacturer provides a statement claiming the equipment will improve the energy efficiency of your home, this is sufficient for you to claim the credit.” From Intuit.com.