M300 Blog / February 16th
Homeowner Tax Breaks You May Be Missing Out On
When life is simple, doing your own taxes can be pretty simple, too. But when you buy a home, your tax situation becomes a bit more complicated, especially in terms of the numerous deductions and credits you can qualify for. Rather than trying to keep all of this straight on your own, consider hiring a professional to ensure you don’t miss out on important tax breaks that are available to you as a homeowner.
Tax Deductions: A tax deduction reduces your taxable income, which in turn reduces the amount of taxes you owe. Below is a list of deductions you can qualify for as a homeowner.
Bundled in with your monthly mortgage payment is your interest payment, and the IRS allows you to deduct your mortgage interest for any home loan up to $1 million dollars. This is especially helpful for new homeowners, as your early payments are mostly made up of interest. You can also deduct interest for a home equity loan or line of credit, as well as a mortgage on a second home, although there are limitations depending on how long you stay there or rent it out during the year.
Mortgage Discount Points
If you purchased discount points to lower your interest rate when you first bought your home, you can deduct them on your tax return. As long as you meet certain criteria, you should be able to deduct the full amount all at once, otherwise you’ll have to spread out the deductions over the life of the loan. Talk to a tax professional for more details.
Real Estate Taxes
Your real estate taxes (or property taxes) are another tax deductible item, as long as the home is your primary residence. If you own a rental property, you’ll have to claim the real estate tax as an expense instead of a deduction.
Both private mortgage insurance (PMI) and mortgage insurance premiums (MIP) are tax deductible. The deduction is reduced, however, if your adjusted gross income (AGI) exceeds $100,000. In addition, you won’t be eligible for the deduction once your AGI exceeds $109,000.
If the sales tax you paid on your home or on home building materials ends up being more than your income tax, or if you live in a state that doesn’t have income tax, you can deduct your sales tax instead. You can’t deduct both sales and income tax, so be sure to choose whichever is higher.
Tax Credits: A tax credit reduces the amount of taxes you owe, dollar-for-dollar. The following tax credits are available to homeowners for the 2016 tax year.
Mortgage Interest Credit
The Mortgage Interest Credit helps low-income individuals afford home ownership. The caveat is: you must request a Mortgage Credit Certificate (MCC) from your state or local government prior to buying your home. If you qualify and obtain the MCC before purchasing, you can get back a portion of the interest you paid throughout the year.
Residential Energy Efficient Property Credit
Did you make any renewable energy improvements to your home last year, such as solar hot water heaters, solar panels, or wind turbines? If so, you can recoup 30% of the costs with the Residential Energy Efficient Property Credit. This credit expired on December 31, 2016, so now is your last chance to claim it as it won’t be available for the 2017 tax year.
Nonbusiness Energy Property Credit
In addition to renewable energy improvements, you can also get a tax credit for energy-efficient improvements, such as adding insulation or energy-efficient windows and doors, as well as certain high-efficiency heating and air-conditioning systems, water heaters, and biomass stoves. The Nonbusiness Energy Property Credit gives you up to 10% of the purchase price for the equipment (though some installation costs may qualify, too), with a lifetime limit of $500. This credit also expired at the end of 2016.
Having access to these credits and deductions is one of the perks of being a homeowner, but trying to navigate them on your own at tax time can be confusing. Talk to a tax professional for more information and to help you take full advantage of these benefits this tax year.
Posted from Waypoints Magazine - https://www.waypointsmagazine.com/single-post/2017/01/30/Homeowner-Tax-Breaks-You-May-Be-Missing-Out-On
This article is for information purposes only and is not an advertisement to extend customer credit as defined by Section 12 CFR 1026.2 Regulation Z. Program rates, terms and conditions are subject to change at any time.
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