Six Tax Breaks that Can Reduce What Homeowners Pay
Posted by : Admin
Owning a home comes with significant advantages. When tax time rolls around, homeowners may see some big benefits that renters will never be able to enjoy. Learn which purchases and decisions will maximize the tax advantages of owning a home and slash your total tax bill.
Let’s look at the six tax breaks available now that can reduce what homeowners pay.
Energy-Efficient Improvements
If you own a home that is old and needs work, improvements could end up saving you money. Certain upgrades in energy efficiency qualify for tax credits that can save homeowners significant cash. Heat pumps, windows, doors, roofing, and insulation meeting the Energy Star requirements all qualify for tax credits. The best part is that this isn’t an itemized deduction; it’s a set amount of credit that comes right off the top.
Renting Out Space
Renting is still hot and might be a solid money-maker if you have extra space in your home. If you rent out a room to a long-term roommate or rent to travelers on popular websites like Airbnb, you may be eligible for deductions at the end of year. Making money renting allows you to take certain expenses as tax deductions. Making repairs, additions, or improvements to the rental space may also be tax deductible. Depending on the investment, homeowners may see a hefty tax savings from choosing to be a landlord in one capacity or another.
Working from Home
If you are one of the millions of workers participating in the ever-growing gig economy, or own your own home-based business, there are tax benefits to working in your home. First, you might be able to deduct the square footage of your office space as a percentage of your mortgage and utilities. You may also take deductions on other expenses like homeowner association fees and insurance. Finally, percentages of the costs of repairs and home maintenance may be deducted. Keep in mind the space must be exclusively used for work. Working from your sofa or stuffing a desk in your bedroom doesn’t qualify.
Mortgage Interest
One of the largest deductions that homeowners can take is on the mortgage loan interest. Depending on the size of the loan, this may add up to several thousand dollars. The “catch” is that you must itemize. The Tax Cuts and Jobs Act reduced the maximum mortgage loan that’s deductible from $1 million to $750,000.
Property Taxes
Another itemized deduction that may offer homeowners big tax savings is the state and property taxes they pay throughout the year. This one makes sense, because it’s not fair to pay taxes on taxes, right? In any case, homeowners who rack up enough deductions to itemize should make certain to add their property taxes to the list.
Qualified Mortgage Insurance Premiums
When a person purchases a house, he or she may be required to purchase mortgage insurance. If the homeowner lets the property go into default, the lender is still able to recover the mortgage amount if there is mortgage insurance. This is typically determined by the percentage a homebuyer can put down on the home. While mortgage insurance adds to the monthly mortgage payment, it may also be tax deductible. This also requires an itemized deduction.
There are many benefits of homeownership – saving on your total tax bill may be one of the best. It’s smart to hire a tax professional to advise you of all the potential tax deductions your homeownership status provides. Being able to itemize your deductions and score tax credits on household items you purchase throughout the year helps lessen your tax burden and gives you more money in your pocket to spend, or save, however you choose.
