Tax Benefits of Home Ownership
Posted on Jan 8, 2014 in Blog, Featured | 0 comments
As tax season is quickly approaching, I wanted to pass on some tax ideas and topics for all to consider.
I recently ran across some excellent info from FoxBusiness.com. There are many benefits and rewards of owning a home, either as your primary residence or as an investment, but many folks overlook the fact that owning a home could mean you qualify for tax breaks. Although you’ll likely need to itemize your taxes in order to take advantage of these deductions, the benefits may far outweigh the complications of the tax forms.
Some of the tax breaks and areas you’ll want to look at:
Mortgage interest paid at settlement
Your closing statement should list your home mortgage interest. On a mortgage of up to $1 million, you can deduct the interest that you pay at settlement if you itemize your deductions on Schedule A (Form 1040). This amount should be included in the mortgage interest statement provided by your lender.
Points
If you paid points on your mortgage, these fees are included on the income tax deductions list and can be deducted as long as they are associated with the purchase of a home. If you refinanced your home, these points are still deductible, but it must be done over the life of the mortgage.
Property taxes
You can deduct your state and local property taxes as long as they are based on the assessed value of the real property. If your money is being held in escrow for the purpose of paying property taxes, you cannot claim this deduction until the money is actually taken out of escrow and paid. Check your Form 1098 for the amount you may deduct.
Selling costs
If you sold a home in the past year, you may be able to reduce your income tax by the amount of your selling costs. These costs can include things such as repairs, title insurance, advertising expenses and broker’s fees. The IRS only allows the deduction of repair costs associated with selling if the repairs were made within 90 days of the sale. It’s also crucial that the repairs were made with the intent of improving your home’s marketability. Selling costs are deducted from your gain on the sale.
Home office
If you use a portion of your home exclusively for the purpose of an office for your small business, you may be able to claim a deduction on your taxes for costs related to insurance, repairs and depreciation. You may only claim this deduction if the space within your home is used exclusively and regularly as either your principal place of business or a place where you meet and deal with customers or patients. You may also be able to take advantage of this deduction if a portion of your home routinely is used for storing items (product samples, inventory, etc.) used in your business.
Mortgage insurance premiums
You may be able to deduct the premiums paid for private mortgage insurance for your principal residence and for a non-rental second home.
The deduction begins to phase out once your adjusted gross income reaches $100,000 ($50,000 for married filing separately). In general, you can deduct the premiums paid for the current tax year only.
Home improvement loan interest
If you’ve taken out a loan to make improvements on your home, the interest may be deductible. The loans must be for “capital improvements” to your home, meaning the improvement must increase your home’s value, adapt it to new uses or extend its life. New carpeting or painting are not considered capital improvements, while adding a garage, installing a water heater or building a deck are all examples of capital improvements.
Construction loan interest
If you take out a construction loan to build a home, you may qualify to deduct the interest. The IRS only allows a deduction for mortgage interest if the loan relates to a “qualified” home, which means it must either be your principal residence or a vacation home that you will use for personal purposes. You can only use this deduction for the first 24 months of the loan, even if the actual construction takes longer.
We recommend you consult the IRS website for information concerning deductions and credits, and consider meeting with a tax professional to ensure you’re not missing any deductions for which you’re eligible.