How to Get More Tax Deductions for Homeowners
As a homeowner, you have the opportunity to take advantage of numerous tax deductions that can help you save money. The Internal Revenue Service (IRS) offers various ways to reduce your tax bill each year, so it’s worth exploring these deductions and claiming them. Here are some key deductions that can keep more money in your pocket.
The Mortgage Interest Deduction
The tax deduction for mortgage interest on your primary residence may have decreased, but you can still deduct the interest on the first $750,000 if you’re married filing jointly or $375,000 if married but filing separately. If you had mortgage interest before Dec. 16, 2017, you can deduct the interest on the first $1 million.
If you’ve refinanced your mortgage, you may be eligible for a tax deduction, depending on the original loan date. If you took out the loan before Oct. 14, 1987, you might be able to deduct all of the interest.
Interest on Home Equity Loans
When you use money from a home equity loan or line of credit to improve your home, you can deduct the interest. However, if the money is used for other purposes, it cannot be deducted. Keep in mind that this loan amount counts towards your mortgage debt, so exceeding the limit may disqualify you from the deduction.
Mortgage Points
The cost of buying points on a mortgage may also be tax deductible. This cost is added to your mortgage interest. If you meet specific qualifications, you may be able to deduct the entire amount in a single year.
Most of the time, the interest must be deducted throughout your loan, especially when purchasing a second home. To claim this deduction, you must itemize your deductions.
If the seller paid for points on your behalf, you can also claim a tax deduction for them.
Property Taxes
You may be able to deduct the annual property tax bill up to $10,000 for income, property, and sales taxes ($5,000 if married and filing separately). However, this deduction requires itemizing on Schedule A, and only amounts above the standard deduction are eligible. Note that it does not include homeowners association fees, utility service charges, or transfer taxes.
Private Mortgage Insurance
If your income is limited to $100,000 (married or single) or $50,000 if married but filing separately, paying private mortgage insurance can provide a tax break. The deduction phases out as your income reaches $109,000 ($54,500 if married and filing separately), and it becomes unavailable once your adjusted gross income (AGI) exceeds that amount. Keep an eye on potential changes to this deduction in the future, as it may expire.
You can also deduct fees from other government agencies, including:
- Veterans Affairs (VA) loan funding fee
- United States Department of Agriculture (USDA) loan guarantee fee
- Federal Housing Administration (FHA) loan up-front mortgage insurance premiums
Residential Energy Credits
By installing alternative energy equipment in your home, such as solar panels or geothermal heat pumps, you may qualify for a residential energy credit. These credits are often available, but eligibility depends on the purchase date and equipment type. Note that these credits may not be available after 2023.
Expenses for a Home Office
If you have a home business, you can benefit from various tax deductions. When claiming the home office deduction, the space must be used exclusively for business purposes. Keep detailed records and deduct expenses such as materials, office equipment, utilities (based on square footage), cell phones, and more. Additionally, some homeowner’s insurance costs, real estate taxes, mortgage insurance premiums, depreciation, security systems, and repairs may be deductible.
You can also deduct vehicle costs and certain travel expenses related to your home business. Other deductible expenses include advertising costs, professional services, business insurance, and interest on business loans. However, employees who work from home cannot claim this deduction.
Capital Gains
When selling your primary home, you may be able to deduct the capital gains from the sale by subtracting the initial cost of the property from the selling price. The IRS allows you to exclude up to $250,000 from your income if you’re single or $500,000 if married filing jointly.
To qualify for the capital gains exclusion, you must have lived in the home for at least two years out of the five years preceding the sale. If you claimed the exclusion on the sale of another home within two years before this sale, you are not eligible to claim it.
The 2023 Standard Deduction
Many of these tax breaks require expenses that exceed the standard deduction. In 2023, the standard deduction is $13,850 for single filers, $27,700 for married couples filing jointly, and $20,800 for heads of household. You can only deduct amounts that exceed these limits.
Some Things You Cannot Deduct
While there are numerous tax breaks available, certain expenses do not qualify for deductions. According to RocketMortgage, you cannot deduct the down payment, principal amount of the mortgage payment, fire insurance, homeowner’s insurance premium, depreciation, utility costs, home improvements (except for medical necessity), or domestic service.
Remember, this article only covers a few of the potential tax breaks for homeowners. To explore all available deductions and stay updated on the latest tax information and changes, it’s best to consult a tax agent.
The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
What are the eligibility requirements for deducting the interest on home equity loans?
Tax deductions can be a valuable tool for homeowners to save money. The Internal Revenue Service (IRS) offers various deductions that can help reduce your tax bill each year. It is important to explore these deductions and take advantage of them in order to keep more money in your pocket.
One key deduction is the mortgage interest deduction. While the tax deduction for mortgage interest on your primary residence may have decreased, you can still deduct the interest on the first $750,000 if you’re married filing jointly or $375,000 if married but filing separately. If you had mortgage interest before December 16, 2017, you can deduct the interest on the first $1 million.
If you have refinanced your mortgage, you may be eligible for a tax deduction depending on the original loan date. If you took out the loan before October 14, 1987, you might be able to deduct all of the interest.
Another deduction to consider is the interest on home equity loans. When you use money from a home equity loan or line of credit to improve your home, you can deduct the interest. However, if the money is used for other purposes, it cannot be deducted. It is important to keep in mind that this loan amount counts towards your mortgage debt, so exceeding the limit may disqualify you from the deduction.
Additionally, the cost of buying points on a mortgage may be tax deductible. This cost is added to your mortgage interest. If you meet specific qualifications, you may be able to deduct the entire amount in a single year.
In most cases, the interest must be deducted throughout your loan, especially when purchasing a second home. To claim this deduction, you must itemize your deductions.
In conclusion, as a homeowner, it is important to be aware of the tax deductions available to you. By taking advantage of these deductions, you can save money and keep more of your hard-earned income.
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