The US tax code is so long that sometimes even the IRS doesn’t understand it. There are a lot of laws, deductions, and rules that can affect your tax bill each year—especially when you own or buy a home. If you’re ready to make less money for Uncle Sam and more for yourself, read on! Here are some of the most notable tax breaks for homeowners and homebuyers.
Homeowners who itemize their deductions can deduct their mortgage interest payments, too. Homebuyers can deduct the costs of mortgage points they pay when they get a mortgage to buy or build a home. They also maybe able to deduct other closing costs associated with buying a new home or refinancing an existing home loan (such as appraisal fees, title insurance premiums, and legal fees).
Mortgage Interest Tax Deduction
The mortgage interest tax deduction is likely the most well-known tax incentive for homeowners, but it’s also one of the most misunderstood. This is how it works: Mortgage interest on your principal house and any other qualified home loan can be deducted up to $750,000 ($375,000 for single taxpayers). The restriction refers to the overall debt, not only new loans issued in 2017; moreover, this sum covers any outstanding debt accrued after December 15th, 2016.
The Property Tax Deduction
The property tax deduction is not only available to homeowners; it is also available to renters and anybody who pays property taxes on a second residence. The deduction is limited to $10,000 per year and only applies to your principal residence. It does not apply when computing state income taxes or sales taxes paid in the same year.
Home Equity Loan Interest Deduction
A home equity loan allows you to borrow money against the value of your property. The interest paid on the funds is deductible as an itemized deduction on your income tax return if you utilize them for any purpose other than home upgrades or repairs.
Deduction For Mortgage Insurance Premiums
If you itemize your deductions, you can claim the deduction for mortgage insurance premiums, which applies to private mortgage insurance(PMI) and mortgage insurance premiums. However, the deduction is not allowed for any amount paid after December 31, 2017 (the end of the tax year).
Mortgage Points Tax Credit
Mortgage points are expenses paid to obtain a reduced interest rate on a home loan. These points can be deducted from your taxes if you are making payments on your primary house and use them to lessen your interest rate. This can result in thousands of dollars saved over time.
Credit For Energy-Efficient Home Improvements
If you’ve made home improvements that make your home more energy-efficient, you may be eligible for a tax credit. The credit can be worth10% of the cost of the improvement and up to $500 total. This credit is only available for work done in 2018 or 2019.
Capital Gains Exclusions On The Scale Of A Primary Residence
- If you own and reside in your home for at least two years out of five years, you can exclude up to $250,000 of gain from federal income taxes if single or up to $500,000 if married and filing jointly.
- If a married couple sells their principal residence and one spouse dies within two years of the sale, that spouse’s unused exclusion amount is added to the surviving partner’s exclusion amount (subject to the above limit)
- To claim this exclusion, you must attach Form 8949 and Schedule D when submitting your tax return.
Final Notes
Now that you’re equipped with knowledge about some of the tax incentives available to homeowners and house purchasers, you can put it to use during tax season. Knowing how to compute the deductions and credits connected with house ownership is as vital as comprehending all of the perks.
Remember that these are just some of the more frequent deductions available; there may be more that might help you save money. If you need help figuring out your mortgage interest, property taxes, or charity contributions, a tax professional can assist you!