Maximize Your Homeowner Tax Deductions Next Year
Many consumers tend to wait until the last minute to file their taxes. In the rush of meeting the deadline, some deductions may get missed, including homeowner tax deductions. If you missed out on maxing out your tax deductions this year, you can start planing now to take advantage of these savings before next year’s tax deadline.
What exactly is considered tax deductible?
Mortgage Interest
Within certain limits, you can write off the interest portion of your mortgage payments. You can deduct all of the interest on a maximum of $1 million in mortgage debt on your first or second home. If you’re married and are filing your taxes separately, the maximums are halved. Just keep in mind that this tax deduction is only allowed on a mortgage property – you can deduct any interest if your home was paid in cash.
You may also be able to deduct the interest portion of your private mortgage insurance (PMI) if you took your mortgage out after 2006. But the amount you deduct will depend on your income – deductions will start weaning above the $100,000 mark. If you bring in $109,000 in one year, you get no deduction at all.
Property Taxes
It stings to pay property taxes on your home, but the good news is you can get a little bit of this money back come tax time. If you’ve got an escrow account, keep in mind that any money being held in this account to put towards property taxes can’t be deducted until you actually use the money towards this payment.
Home Equity Loan
You might be able to write off some of the interest you pay on a home equity loan, within limits. The IRS will allow this tax deduction as long as the total is the lesser of $100,000, or the total of your property’s market value, minus other debts against your home.
Interest on Your Home Improvement Loan
Many homeowners take out a loan to pay for significant improvements on their home if they don’t have the liquid cash to pay for them up front. Any interest paid on these loans can be deducted, as long the work is considered to be a “capital improvement” – that is, they increase the value of the home, extend its life, or alter it for new uses – as opposed to typical repairs.
Examples of capital improvements include building a deck, insulting the attic, adding a new roof, landscaping the yard, changing the HVAC system, and so forth. Fixing small leaks, patching up cracked tiles, and repainting don’t qualify as capital improvements. Any loans taken out to pay for such work wouldn’t be considered tax deductible.
Home Office Expenses
If you work from home, or perform at least a part of your work from your house, you can write off a percentage of certain expenses related to running your business. These costs may include home insurance, utilities, repair costs, and home value depreciation.
Selling Expenses
In the event that you sell your home, you can deduct your selling expenses. Realtor commissions, legal costs, advertising expenses, title insurance, and inspection fees are all classified as selling costs.
These expenses can be deducted from your gain, which is the selling price of your home, minus deductible closing costs and your tax basis (the original purchase price, plus capital improvement costs, minus home value depreciation).
Paying taxes is never fun, but at least you can get some of your hard-earned cash back when it’s time to file them. Team up with a good accountant who can fill you in on all the little ways you can trickle some funds back into your account. Every little bit counts.
