It’s an undisputed fact that owning a home is expensive. The good news is that there are many different tax deduction opportunities and this article will explain how you can get the best from homeownership write-offs on your next tax return.
Mortgage Interest
All mortgage interest payment on your home up to $1 million for a couple filing can be deducted but this applies to your home equity line (a loan up to one hundred thousand dollars) of credit and second mortgage. If you own a second home (a mobile home or vacation cottage), the mortgage interest can be deducted as long as you reside there for more than 14 days per year or 1 percent of time it is rented out.
Mortgage points and insurance
The points you pay on your mortgage can also be deducted in addition to the mortgage interest for your main home the year you made payments and also points paid for a home equity loan. It’s important you note that points paid for refinancing your home mortgage have to liquidate gradually over the length of the loan. Premiums paid for PMI (Private mortgage insurance) on your loans where you earn less than $109,000 can be deducted.
Property taxes
This one is a must. If you’re going to tack on deductions then you cant forget your property taxes. Ensure your property tax bills are intact to serve as proof of payment.
Home office
Crazy right? You may be entitled to home office deduction if you run a home based business. Qualifying for this deduction requires you to jump over several hoops. The two biggest hoops are;
1. Your home must be your primary place of business
2. The office space must be set out and used exclusively for work.
You can calculate your deduction in two different ways. The simplified option allows you deduct $5 per square foot of the home office area (the max is 300 sqft.)
This complex calculation requires you divide the square footage of the office by the square footage of the entire home to get the business percentage. The business percentage is then multiplied by the allowable home costs (utilities and mortgage interest) to get the deductible.
Energy credits
You can get a credit of up to 10% (to a maximum of $500) of the improvement cost on your home is you implement energy efficient improvement. A credit of 30% of cost also waits if you use renewable energy systems like solar power. You may also earn a state tax credit for the energy efficient and renewable energy sources.
Medical Home improvements
You can write off cost of some home improvement that are necessitated as a result of medical conditions (e.g. adding a stair lift because of arthritis, air filter because of allergies) under your medical deductions.
However, the minimum that can be deducted is the 10% of your adjusted gross income and 7.5% for age bracket above 65. In most cases, you are only entitled to deduct the difference between equipment cost and valuable improvement the equipment has added to the home.
Home sales
You might also be eligible to tax savings if you sold your home in the last year. You can deduct your title insurance, real estate charge and any amounts spent in marketing. Improvements made to the house in order to sell can be deducted (but this is only applicable if you have a taxable capital gain from the transaction).
Home damages
If natural or anthropogenic disasters like theft, rain, weather caused damage to your house and you suffered casualties’ loss, you may get deductions. Additionally, if the insurance didn’t cover the loss greater than 10%, the loss can be deducted.
For more information on tax related issues please contact your Certified Public Accountant. If you need help connecting with one in your area, just let us know.
