Write-Offs Uncle Sam Wishes You’d Forget
Now that tax time is just around the corner, we wanted to remind you of all the great tax benefits you can take advantage of once you’re a homeowner. It makes homeownership more affordable!
These tax breaks that can shave off thousands of dollars from your IRS bill … but you need to be a homeowner first. Remember to always consult with your tax advisor.
• Mortgage interest. Interest paid on home loans is deductible up to $1 million for a principal residence plus a second home. You’ll need to itemize your income taxes in order to claim this. Don’t just fill out the 1040-EZ without doing the math first to see whether itemizing or the standard deduction will result in the lowest tax bill – or highest refund – for you.
• Property taxes. Property taxes on all real estate are fully deductible. When you buy a home, check the settlement sheet to see if you reimbursed the seller for property taxes he or she prepaid for a period you actually owned the home. If so, include that amount in your property tax deduction.
• Credit for green improvements. Not a tax break but a credit. It allows homeowners to take up to $500 off their federal income tax for making certain improvements that increase the energy efficiency of their homes, such as water heaters, furnace, boiler, heat pump, windows or roofing. The Alliance to Save Energy and the Database for State Incentives for Renewables & Efficiency explain the specifics on what is eligible.
• Investment Property/Rental Property. The cost of maintaining and marketing a rental property can be deducted from the income the property generates, without regard to the owner’s tax status. These expenses include mortgage interest payments, insurance, utilities, maintenance, repairs, advertising costs and management fees, as well as the non-cash cost of depreciation. Check out our How to Be a Landlord series.
• Home office. You can deduct the costs of a home office that you use exclusively as your principal place of business.
• Tax-free rental income. If you rent out your own home for 14 or fewer days during the year, the rental income is tax-free.