What Every Homeowner Should Know About Tax Deductions

03
February

Below is information on what every homeowner should know about tax deductions. Your home provides numerous benefits, not the least of which is a host of tax deductions which will save you potentially thousands of dollars come tax time.

As always, you should talk with your tax advisor for more specifics, but here are some of the top tax deductions that homeowners can take.

1. Mortgage Interest – The interest you pay on your home loan is usually 100% tax-deductible. The interest on multiple mortgages is even tax deductible, so long as the sum of the mortgages is not more than $1 million. To be deductible, the loan must be to build, improve or buy a home.

2. Home Improvements – These increase the value of your home. Keep in mind that the expenses incurred with home improvements is not deductible right away when you incur the expenses. However, you should keep the receipts from these home improvements. This should help you show a higher cost that you have in your home to reduce any potential taxable gain that might be incurred when you sell your home at a profit.

3. Points You Pay for a Refinanced Loan – If you refinanced your loan within the last year, you should be able to do a write-off of any points that you paid in order to obtain a lower mortgage rate for your loan. You need to deduct the points in a proportional basis over the timeframe of the refinanced loan. As an example, for a traditional 30 year loan, the deduction would be an amount equal to 1/30th of the points that you paid every year. Also, if you have refinanced in the past, and you haven’t completely finished deducting those points associated with the prior refinanced mortgage, a write off is allowed for the remainder of those previous points during the year of the new refinance. If you purchased your home during the prior year, any points that you paid during closing can be deducted on your taxes for that year.

4. Home Offices – If you work from home and have a home office that qualifies, you are allowed to deduct the costs incurred with maintenance of the part of your house that is used exclusively for business. As an example, all of the expenses incurred for the office, such as upkeep and painting and upkeep can be deducted. You can also deduct part of the indirect expenses you incur, like the cost of garbage pickup and utilities.

5. PMI – the deductibility of Private Mortgage Insurance (PMI) has been extended through the end of 2010. Be aware of the restriction that requires that you must have refinanced or bought the house subsequent to January 1, 2007. Your adjusted gross income also has to be less than $110,000.

6. Vacation Homes – You are allowed to deduct certain costs involved with the ownership of your vacation home. These include personal property taxes, mortgage interest, mortgage points and real estate taxes.

7. Capital Gains with No Income Taxes – Following the Tax Act of 1997, once during every two years, homeowners who are single can sell their home at a profit of up to $250,000 that is tax exempt. A requirement for this is that the seller of the house owned and lived in the house as his or her principal residence for any two of the previous five years. Married, filing jointly homeowners can sell their home at a profit of up to $500,000 tax free under this same law.

8. Property and Real Estate Taxes – Taxes paid for local and state property taxes are deductible. However, they are deductible only during the year that you actually pay them to the government.

9. Health Related Improvements to the Home – Any improvements to your home that you make for medical purposes are deductible from your taxes in their entirety so long as they do not increase the total value of your home. They also need to have been made for a disable or chronically ill person.

This post was written by

jason – who has written posts on Budget Clowns.
Father of three and married to a lovely women. Always looking for ways to save money, and invest it properly for my children's future.

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