Reducing your overall tax debt may be one of the benefits of owning a home. State and federal governments offer many tax incentives to homeowners, and your accountant will certainly be able to help you determine which ones you qualify for. Here are the most common home-ownership-related deductions you can use to reduce your tax debt.
You can deduct the interest payments on both your primary residence and secondary residence if your total loan amount is less than one million dollars and you itemize your deductions. Deducting the interest you pay on your home mortgage is one of the oldest and most-commonly used methods to save money on your taxes. This method is especially effective during the early years – as most loan payment schedules are structured to be more interest heavy in the early years.
Another item that is deductible in many cases is any mortgage points you purchased when you bought your home. For tax purposes, mortgage points are a form of prepaid interest, and as such, can be deducted in full during the same year in which they were purchased. Points purchased when refinancing work differently. These points are deducted over the life of the loan. If you refinanced to a 30-year fixed, you can deduct 1/30th of your points each year for 30 years.
Property taxes are tax deductible, but many people neglect to take this deduction because they rarely pay their property taxes directly – they’re normally paid out of an escrow account. You can find the amount you paid in property taxes by reviewing your annual statement sent to you by your lender each year.
If you have made or plan to make capital improvements to your home like adding a deck, installing a new roof or redoing the kitchen, make sure to save your receipts; you’re going to need them come tax time. Home improvements are tax deductible, but there is a caveat: the home improvements must add value to the home – routine maintenance does not qualify.
Whether you have taken advantage of these deductions in the past or not, consult your expenses from last year and your accountant to determine the best way to approach filing your taxes this year.
Photo courtesy Chris Potter/Flickr.com
Brooke Boles
Coldwell Banker Realty
501 E Camino Real
Boca Raton, FL 33432
561.595.4473
Brooke.Boles@CBREalty.com
www.BrookeSellsBoca.com
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