Yes, it’s almost that time again! Tax time is rapidly approaching and it is time to get your tax documents in order and consider all of the ways you can minimize your tax liability. There are a number of home-related tax breaks that you should consider, no matter whether you own a single-family home, condo or townhouse.
The mortgage interest deduction has long been the favorite tax benefit of being a homeowner. It is such a huge money saver, especially in the early years of a mortgage. In fact, every year Americans save almost $100 billion by claiming this deduction, which can be taken on both primary and secondary residences (some limits apply).
Whenever you originate a loan, any prepaid interest (otherwise known as “points”) is considered as mortgage interested paid in advance. For non-refinance loans, these points can be deducted in full the year that they were paid. If you refinanced your existing loan, then the math gets a little tricky, as you have to deduct the points over the life of the loan. For example, a new $200,000 loan with two “points” results in you being able to write off $4,00 on your tax return. If that loan were a 30 year refinance, you would write off $4,000 divided by 30 ($133) per year.
The amount of property taxes that you paid is deductible only if you itemize your expenses. Check your annual mortgage statement from your lender or the holder of your escrow account to see how much money was paid in taxes, and itemize that on Schedule A, line 6 of your IRS returns.
With improved confidence in the housing market and the economy, this past year saw a surge of home improvement and remodeling projects. Whether you added square footage, put on a new roof, or made other “capital improvements” to your home, the money spent on these projects can help lower your tax bill when you sell your home. Not all home improvement can help you save on taxes, as the improvements must increase the value of your home, they cannot be simple repairs that return things to their original condition. And remember, if you are doing projects, save those receipts.
Check with your accountant or local tax professional for more information on how you may be able to take advantage of these homeowner tax benefits.