Homeownership comes with a multitude of responsibilities, but it also offers an array of financial benefits, especially when tax season rolls around. If you\'re a homeowner, understanding which tax deductions you can claim is crucial for maximizing your returns and keeping more money in your pocket. In the spirit of helping you navigate this complex landscape, this article will highlight some key tax deductions that could make a significant difference when filing your taxes.
Mortgage Interest Deduction
One of the most substantial deductions available to homeowners is the mortgage interest deduction. This allows you to deduct the interest paid on up to $750,000 of mortgage debt ($375,000 if married filing separately) incurred after December 15, 2017, to buy, build, or improve your home. If your mortgage predates that, the limit is $1 million ($500,000 for a married taxpayer filing a separate return). Make sure to always check the latest IRS guidelines as these amounts can be subject to change due to new tax laws.
Property Tax Deduction
The property tax deduction is another significant benefit for homeowners. The Tax Cuts and Jobs Act has placed a limit on this deduction, capping state and local tax (SALT) deductions at $10,000 ($5,000 if married filing separately), which includes property taxes. While this is a reduction from previous years with no cap, it still represents a valuable deduction for many taxpayers.
Home Office Deduction
With more people working from home than ever before, the home office deduction has gained relevance. If you use a portion of your home exclusively for business purposes, you might be eligible to deduct expenses related to that portion of your home. Keep in mind that there are strict rules regarding this deduction, so you need to ensure that you meet the criteria set by the IRS. It\'s important to have a dedicated space used regularly and exclusively for work, and your home should be the primary place of your business.
Investing in energy-efficient upgrades not only benefits the environment but also your tax bill. Homeowners can sometimes claim a Residential Energy Efficient Property Credit for solar electric systems, solar water heaters, geothermal heat pumps, small wind turbines, and fuel cell property. There\'s also a Nonbusiness Energy Property Credit for other qualified energy-efficient improvements like adding insulation, energy-efficient exterior windows and doors, and certain roofing materials.
Mortgage Points Deduction
When you obtain a mortgage, you may have the option to buy points to lower your interest rate. These points are prepaid interest and can be deductible as mortgage interest if they meet certain requirements. To qualify, these points must be used to build, buy, or improve your main home and the payment of points must be an established business practice in your area, among other criteria.
Medically Necessary Home Improvements
If you\'ve made home improvements for medical reasons—for example, adding wheelchair ramps or widening doors—you may be able to deduct these expenses as medical deductions. These improvements must be considered medically necessary and exceed 7.5% of your adjusted gross income to be deductible.
Home Sale Profit
Although not a traditional deduction, homeowners should remember that if they\'ve sold their primary residence, they could exclude up to $250,000 of the gain from their income ($500,000 for married couples filing jointly), provided they\'ve owned and lived in the home for at least two of the five years prior to the sale.
As a homeowner, you have access to several tax deductions that can significantly reduce your taxable income and maximize your returns. From mortgage interest and property taxes to energy efficiency credits and home office expenses, these deductions are designed to alleviate some of the financial burdens of homeownership. However, it\'s essential to stay informed about the ever-changing tax laws and understand which deductions apply to your situation. Keeping good records and consulting with a tax professional can help ensure that you take full advantage of these benefits. By doing so, you\'ll not only save money but also gain peace of mind knowing that you\'re making the most of your investment in your home. Remember, every dollar you deduct is one that stays in your pocket—make sure you\'re claiming all that you\'re entitled to this tax season.
This article was contributed on Jan 25, 2024