Leveraging Your Home During Tax Season
The financial benefits of owning your own home are plentiful, including the resounding advantage of building equity over time and offering far greater long-term benefits over renting. However, at tax time, the financial benefits become even more apparent with homeowners given substantial tax breaks from the time you purchase it until the time you decide to sell.
Whether you are still in the process of filing your taxes or need one more reason to visit with a mortgage lender, you should be well aware of these housing tax breaks.
The following can be eligible for tax deductions:
- Property taxes, state and local.
- Mortgage interest on your home as well as if you own a second home, boat or RV – “as long as it has cooking, sleeping and bathroom facilities,” according to Bankrate. For most homeowners, a large portion of their monthly mortgage payment goes toward interest, which is deductible, thus this is usually homeowner’s most lucrative tax break.
- The interest borrowed for a home equity loan – up to $100,000.
- Home improvements that were required for medical care.
- According to Fox, millions of people every year claim a home office deduction, meaning they regularly and exclusively dedicate a portion of their home to meet with clients or conduct work. The deduction is $5 per-square-foot of space and is good up to 300 square feet.
- Energy efficient home improvements, up to 30 percent of the cost, for new and existing homes. Rentals do not apply. Possible energy efficient upgrades that qualify for tax credits include installing geothermal heat pumps, small residential wind turbines, solar energy systems and fuel cells. Federal tax credits in regard to energy efficient improvements expire every year until Congress approves a new set of standards, so these same tax credits may not apply next year. Visit Energy Star’s website to learn more.
- If you sold your home and made a sales gain. If you lived in a recently sold home for at least two of the last five years before the sale, you can avoid paying tax on the sales gain from the sale of the residence – up to $250,000 if you’re filing single and $500,000 if you’re filing jointly. If you don’t meet the resident requirements, you will owe tax on the profit unless you can prove that you were forced to sell before you could live in the property for two years due to “unforeseen circumstances” such as death, job loss, divorce or multiple births from a single pregnancy.
According to Turbo Tax, you cannot deduct the insurance on your home, appraisal fees or dues to a homeowners association.
We always advise you to speak with a professional tax consultant before submitting your taxes to ensure you’re legally and financially correct.