Hopefully the above pictured house does not resemble the one you just purchased to become a homeowner. Hopefully you have not live in above referenced house for many years. Because I wouldn’t even want to know how many spook-tacular ghosts, ghouls and monsters live amongst you if that were the case. It is halloween though so we felt a haunted looking mansion would be fitting for our blog post on 5 tax deductions for all homeowners to consider.
So you just bought a house. Or a coop. Or a condo. Or a tent. Yeah, no. If you bought a tent and are using that as your domicile, unfortunately, you are not a homeowner. Maybe you bought a house a while ago. Being a homeowner is a goal for many people. In fact, for many people it is the goal. It is a smart financial move in many aspects as it is a great investment to own any real estate, build equity etc. Real estate value may take a hit at times but it almost always comes back. And as Tony Soprano said to his son in an episode of the Sopranos, “Buy land AJ. God ain’t making any more of it.” So you’ve done something good. You’ve got yourself a home. Now onto the renovation projects of removing the pink and yellow 80’s tile from the bathroom and pulling up the white carpet that one spilled glass of wine will ruin. But as you enjoy your new home, also remember the tax breaks that are now available to you because of your homeowner status. Here are some homeowner tax deductions:
1. Mortgage Interest Deduction. Chances are, unless you had a boatload of cash in the piggy bank, you took out a mortgage to help pay for your new home. The lender will likely send you whats called a Form 1098 that will tell you the amount of Mortgage Interest you paid for the year. Now keep in mind, there is the Mortgage Interest and the Principal. The principal is not deductible. The interest is. So when you get that form in the mail make sure you get it to us because it is often a pretty nice deduction that can dramatically reduce your tax liability. Even better, lets say you refinance. That interest is fully deductible two. Let’s say you purchase a second home for a sweet vacation spot in the mountains for your obsession with skiing. That mortgage interest is fully deductible as well. “But wait there’s more.” Buying a boat or RV with a bedroom, bathroom and kitchen that you could technically live in? That mortgage interest is fully deductible as well!
2. Mortgage Points. Paying points on a mortgage can also be claimed as a deduction as well. Points are fees equal to 1% of the principal amount of the mortgage. So one point on a $300,000 mortgage would be the equivalent of $3,000. These payments or points on a mortgage are deductible in the tax year the homeowner paid them. Don’t worry. I know this may seem super complicated. That’s what you have a tax preparer for.
3. Home improvements and going green. Certain tax credits are given to those homeowners who decide to “go green” and make home improvements that add to the homes energy efficiency. For example, one could install a new door or a new set of windows that better insulates the house. The cost of doing such may elicit a tax credit depending on the circumstances. All “green home” energy credits are very case specific so definitely consult your accountant before pulling the trigger. Home improvements to cater to a disabled individual or a medical issue the home occupants may have can also be tax deductible. So maybe an occupant requires a device to assist with going up stairs to be installed or a ramp to be built for someone in a wheelchair, these kinds of expenses could be tax deductible. Again consult an accountant or tax consultant to find out specifics.
4. Real Estate Taxes. Ahh property taxes. Most homeowners pay them. They stink. But you can deduct them which makes it a little less painful. The amount you paid in property taxes will likely show up on the Form 1098 issued by the lender of your mortgage interest. But if not, and you did pay property taxes, there are other ways to determine the total amount you paid for the year. Again, that amount is deductible.
5. Home Offices. I am not going to get much into this because we wrote an article stating that we are uneasy about this here deduction because our experience shows it elicits a boatload of desk audits and any audit can get ugly. But you can take a home office deduction should you used a space in your house exclusively as an office space. Check out that article we did discussing the home office deduction here.
So while you are constructing that man cave out of your unfinished basement, be sure that you are keeping these things in mind for tax time. Being a homeowner comes with many responsibilities but it also comes with a few tax incentives that can prove to be extremely beneficial when attempting to give that ol’ tax refund a little boost. Or maybe bring that $10,000 balance down a smidgen. Well hopefully more than a smidgen. You get the point. Also keep in mind that there is much more to this and you should really consult a tax professional regarding your home ownership as it relates to your tax return. Oh you have a question do you? Well get in touch with us just below! d2 signing off.