April 18th, one of the most polarizing days of the year, is almost here. You guessed it: tax day.
If you are a new (or even experienced) homeowner, the thought of filing taxes probably fills you to the brim with discomfort and anxiety. The mind-numbing process is complex, confusing, and packed with ambiguous verbiage that seems like it is only intended to mislead ill-equipped filers. Lucky for you, it doesn’t have to be that way. These homeowner tax tips will help you get back all the money you deserve this year.
There are a multitude of deductions available to homeowners that are often overlooked. According to the IRS, the standard deduction for a single head of household was $9,300 in 2016. But if you’re a homeowner who knows what to look for, you can exceed that threshold when you file this year. Who doesn’t want more money in their pockets?
Understand which deductions you qualify for by devouring these homeowner tax tips and you’ll be well on your way to a profitable spring.
Homeowner Tax Tips: Deductions & Items To Remember
Would you like to know some tax tips for real estate investors? Do you have yet to fall under the category of “homeowner”? If so, why? Is it because you feel you cannot afford a home in your desired market? Is it because the complexity of buying and selling scares you? Is it because you think renting has more advantages? There are plenty of responsibilities that come with owning a home, but the positives certainly outweigh the negatives. Whatever your hesitation may be, perhaps understanding the tax benefits that accompany homeownership will be enough to convince you to buy 2017!
Mortgage Interest: Deducting mortgage interest is one of the biggest tax benefits homeowners can take advantage of. The average mortgage insurance on a 30-year fixed-rate loan for a $300,000 home is around $12,000, all of which you have the opportunity to make back. If you are a new homeowner, your deduction could be even higher because the majority of your mortgage payment goes to interest in the earlier stages of the loan. Remember, this deduction is applicable for not only your home, but also your second home, condo, boat, or RV (so long as you stay under the 1.1 million dollar cap). There are a few restrictions to keep in mind, however:
- If you rent out your second home for more than 14 days per year, you must live in the home more than 10 percent of the of the number of days you rented it out for it to qualify as a second “home.”
- If you help a member of your family with mortgage payments, you cannot deduct the interest unless you are a co-signer.
- If you were living in your home as a renter (not an owner) before you purchased the home, you cannot deduct those initial rent payments.
Mortgage Insurance: Everyone remembers mortgage interest, but mortgage insurance can be deducted, too! If you were only able to pay a small down payment when purchasing your home, your lender likely forced you to buy private mortgage insurance (PMI). PMI is a small monthly fee to protect the bank against default. PMI can be deducted until your adjusted gross income (AGI) exceeds $100,000, after which, deductions decrease.
Selling Your Home: Owning a home isn’t the only way to qualify for tax deductions; selling a home offers you the chance to receive significant benefits, too. If you advertised the sale of your home, purchased title insurance, or paid real estate broker fees, you can write those payments off. If you made repairs prior to selling the home, write them off. Better yet, if you make less than a $250,000 profit when selling your home, you don’t get taxed on that income (so long as you owned and lived in the home for at least 2 years prior to selling). Lastly, if you are forced to move more than 50 miles away because of a job, you can write off a majority of moving expenses.
Property Tax: Any state and local property tax you pay (for both your residing home and other owned real estate) is deductible (so long as you are choosing to itemize your return). Be sure to keep in mind:
- You can only deduct property taxes from the month you purchased the home. This means, if you bought your home in December, you can only deduct one month of property taxes.
- Certain fees on your property tax bill look like taxes, but are in fact just miscellaneous fees and are not deductible. These fees include a water service eee, a trash collection fee, and any costs that accounted for maintenance to your property (i.e. the installation of a new sidewalk).
Green Upgrades: A great way to save money during tax season is by installing energy efficient appliances or performing any “green” upgrades. Updates like insulation, energy efficient windows and doors, and high efficiency air conditioners and heaters can give you up to a $500 credit. The credit for more extensive projects, like installing solar energy panels, is 30 percent of the cost including the product, installation, and wiring.
Casualty Losses: According to the IRS, if your property was damaged by a sudden, unexpected, or unusual event (i.e. natural disaster, burglary, vandalism etc.), you will have the chance to make money back. As long as you pay at least 10 percent of your income out-of-pocket to cover damages, you can write-off the remainder. Sounds great, right? Just keep in mind these stipulations:
- If your insurance or a lawsuit covers any loss or damages, chance for a deduction is nullified.
- You can only write off the fair market value of whatever was stolen or damaged. This means, if the computer you bought for $1,200 in 2011 was destroyed in a flood, you would only be able to write off somewhere in the neighborhood of $800.
Home Office: If you own a small business or have a dedicated office space in your home (no, the family room where you took a few business calls does not count), you probably qualify for a home office deduction. If you do in fact qualify, you have the ability to deduct:
- Any direct expenses used to maintain the office space.
- If your office space takes up 20 percent or more of your home, you can deduct 20 percent of your bills for utilities, homeowners insurance, homeowners association fees, security and general repairs and maintenance.
- Interest and property taxes.
These are just a few of the many homeowner tax tips people have come to depend on, so be sure to consult with a CPA before filing. That way, you are more likely to get back the money you deserve this year.