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Top 10 Tax Breaks For Homeowners

By owning your own Big Bear home, you are eligible to receive many tax benefits throughout the time you own the property. Here’s a brief overview of the top ten homeowner tax deductions:

1. Mortgage Interest

Interest that you pay on your mortgage is tax deductible, within limits. If you’re married and filing jointly, you can deduct all your interest payments on a maximum of $1 million in mortgage debt secured by a first or second home. The maximums are cut in half for married taxpayers filing separately.

Note: You can’t use the $1 million deduction if you pay cash for your home and later use it as collateral for an equity loan.

2. Points

Your mortgage lender will charge you a variety of fees, one of which is called “points.” One point is equal to 1% of the loan principal. One to three points are common on home loans, which can easily add up to thousands of dollars. You can fully deduct points associated with a home purchase mortgage.

Refinanced mortgage points are also deductible, but only over the life of the loan, not all at once. Homeowners who refinance can immediately write off the balance of the old points and begin to amortize the new.

3. Equity Loan Interest

You may be able to deduct some of the interest you pay on a home equity loan or line of credit. However, the IRS places a limit on the amount of debt you can treat as “home equity” for this deduction. Your total is limited to the smaller of:

•$100,000 (or $50,000 for each member of a married couple if they file separately), or

•the total of your home’s fair market value — that is, what you’d get for your house on the open market — minus certain other outstanding debts against it.

4. Home Improvement Loan Interest

If you take out a loan to make substantial home improvements, you can deduct the interest, with no dollar limit. However, the work must be a “capital improvement” rather than ordinary repairs. Qualifying capital improvements are those that increase your home’s value, prolong its life, or change it to new uses. For example, qualifying improvements might include adding a new roof, fence, swimming pool, garage, porch, built-in appliances, insulation, heating/cooling systems, landscaping, or more. Keep in mind that increasing the square footage of your home could trigger a reassessment and higher property taxes. Work that doesn’t qualify for an interest deduction includes repairs such as repainting, plastering, wallpapering, replacing broken or cracked tiles, patching your roof, repairing broken windows, and fixing minor leaks.

5. Property Taxes

Often referred to as “real estate taxes,” property taxes are fully deductible from your income. If you have an impound or escrow account, you can’t deduct escrow money held for property taxes until the money is actually used to pay your property taxes.

6. Home Office Deduction

If you use a portion of your home exclusively for business purposes, you may be able to deduct home costs related to that portion, such as a percentage of your insurance and repair costs, and depreciation.

7. Selling Costs

If you decide to sell your home, you’ll be able to reduce your taxable capital gain by the amount of your selling costs. Real estate broker’s commissions, title insurance, legal fees, advertising costs, administrative costs, and inspection fees are all considered selling costs.

All selling costs are deducted from your gain. Your gain is your home’s selling price, minus deductible closing costs, selling costs, and your tax basis in the property. (Your basis is the original purchase price, plus the cost of capital improvements, minus any depreciation.)

8. Capital Gains Exclusion

Married taxpayers who file jointly now get to keep up to $500,000 in profit, tax free, on the sale of a home used as a principal residence for two of the prior five years. Single people (including home co-owners if they separately qualify) and married taxpayers who file separately get to keep up to $250,000 each, tax free.

9. Moving Costs

If you move to a different area because of a new job, you may be able to deduct some of your moving costs. To qualify for these deductions you must meet several IRS requirements, including that your new job must be at least 50 miles farther from your old home than your old job was. Moving cost deductions can include travel or transportation costs, expenses for lodging, and fees for storing your household goods.

10. Mortgage Tax Credit

A home-buying program called mortgage credit certificate (MCC) allows low-income, first-time homebuyers to benefit from a mortgage interest tax credit of up to 20% of the mortgage interest payments made on a home (the amount of the credit varies by jurisdiction). The maximum credit is $2,000 per year if the certificate credit rate is over 20%. (See IRS Publication 530.) You must first apply to your state or local government for an actual certificate. This credit is available each year you keep the loan and live in the house purchased with the certificate. The credit is subtracted, dollar for dollar, from the income tax owed.

For more information on real estate tax laws, visit www.irs.gov. You’ll find basic information for first-time homeowners (IRS Publication 530) and publications about selling your house (IRS Publication 523), business use of your home (Publication 587), moving expenses (Publication 521), and home mortgage interest deductions (Publication 936).

As with all important financial decisions, be sure to consult with your accountant or tax attorney.

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