TAX BREAKS EVERY HOMEOWNER SHOULD KNOW
If death and taxes are the two true givens in life, there probably should be a third: the bucketful of tax breaks Uncle Sam throws out every year to encourage more Americans to buy a home.
Some of the most significant tax breaks that only homeowners can claim are fairly well-known, such as the Mortgage Interest Deduction, but here are some others:
1. Points on home mortgage and refinancing: If you bought a home with a mortgage, then in addition to the mortgage interest (which may not be a lot if you bought late in the calendar year), you can probably write off the points (both origination and discount points) on your tax return. That’s because the IRS considers points to be prepaid interest. Contact a tax advisor for tax advise regarding your specific situation.
2. Interest on home-improvement loan: The IRS considers the interest on a home-improvement loan fully deductible, up to $100,000 in debt. In addition, interest paid on a home equity line of credit (HELOC) is may also tax-deductible. Contact a tax advisor for tax advise regarding your specific situation.
3. Property tax: Property taxes are almost always tax-deductible, but some things on your settlement document that might look like taxes really aren’t. You can’t write off your attorney and appraisal fees, title insurance and credit report costs. Transfer taxes however can be written off. Contact a tax advisor for tax advise regarding your specific situation.
4. Energy-efficiency tax credit: If you made efforts to make your home more energy efficient by installing equipment like storm doors, energy efficient windows, insulation, air-conditioning and heating systems, the IRS wants to give you a tax credit. The credit however is set to expire on Dec. 31, 2016. Contact a tax advisor for tax advise regarding your specific situation.
5. Renewable-energy tax credit: If you’ve installed equipment that uses renewable sources of energy, such as the sun and wind, to help power your home, you may be eligible for the Renewable Energy Efficiency Property Credit. Contact a tax advisor for tax advise regarding your specific situation.
6. Income and interest on reverse mortgages: The IRS considers reverse mortgages as a loan advance not income, so the amount you receive isn't taxable. But the interest accrued on a reverse mortgage isn't deductible until the loan is paid off, so you can’t take a deduction each year for the interest as you might with the traditional mortgage interest you pay. Contact a tax advisor for tax advise regarding your specific situation.
7. Private mortgage insurance: You may be eligible to claim the deduction for private mortgage insurance (PMI) or mortgage insurance premiums on your tax return. Keep in mind that the deduction for qualified mortgage insurance premiums is reduced if your adjusted gross income (AGI) is over $100,000, and if it’s over $109,000 you can’t take the deduction at all. And you won’t get around that limitation if you’re married and filing separately, as the deduction begins to be reduced at $50,000 in AGI and disappears at $54,500. Contact a tax advisor for tax advise regarding your specific situation.
8. Home expenses and improvement: If you make improvements to your property, you cannot write off the cost of home improvement, such as the materials and the labor. (Though you can write off the interest of course if you took out a home loan to pay Joe Contractor and purchase the materials.) However, when you sell your home, you can add the cost into the asking price of your property, which should diminish the capital gain when you sell your home. Contact a tax advisor for tax advise regarding your specific situation.
9. Buying a home: The IRS allows first-time home buyers to withdraw up to $10,000 from their traditional IRA (and even Roth IRAs) penalty-free to help with the purchase of the home. Your spouse or even a parent, child, or grandchild can kick in another $10,000 from their IRA accounts, for a total up to $20,000. You can also borrow half of your 401(k) balance up to $50,000 for the purchase of a home. But, the interest you pay on that 401(k) loan, unlike a mortgage loan, isn’t tax-deductible. Contact a tax advisor for tax advise regarding your specific situation.