Homeownership isn’t cheap, but it does come with certain perks. Some of those perks include tax breaks. Below is a list of some of the key tax breaks you may qualify for as a homeowner.
1. Mortgage interest deduction. The mortgage interest deduction allows you to deduct mortgage interest you pay on a first and second home, up to a maximum of $1 million in mortgage debt (for single filers,, the maximum is $500,000). But, you can only deduct interest on mortgages for two homes.
2. Home-equity loan interest. If you take out a home-equity loan, the interest you pay is deductible, with certain restrictions. If you use the loan to improve your home, the interest you pay on the deb6t is fully deductible (subject to the $1 million cap). But if you use the loan for a reason other than to buy, build, or improve your home, you can only deduct interest paid on the first $100,000 of debt.
3. Sale of home. When selling a home, you can exclude gains of up to $250,000 if you are a single taxpayer and $500,000 if you are married filing jointly, provided the home was your primary residence in at least two of the preceding five years. The exclusion can be used once every two years.
4. Points. Points are also tax deductible. Sometimes, buyers will pay extra points to secure a lower interest rate from their lender. One point typically is equivalent to 1% of the total amount of your mortgage loan.
5. Private mortgage insurance deduction. If you purchase a home but don’t make a down payment of at least 20%, you will need to buy private mortgage insurance (PMI). PMI payments are deductible if you obtained the mortgage or refinanced on or after January 1, 2007. The PMI deduction begins to phase out for those at higher income levels but is currently scheduled to expire after 2013.
6. Property taxes. Sometimes referred to as real estate taxes, you can deduct any property taxes you pay from your federal taxes.
7. Home office deduction. If you work from home, you may be able to deduct the expenses you incur for the business use of your home. There are a number of caveats, however. You must use part of your home exclusively for business. You must also regularly conduct a substantial portion of your business in the space. Beginning in 2013, taxpayers can choose a simplified option for claiming the deduction, which allows them to deduct $5 for each square foot of their home used for business.
8. Tax credit for energy-efficient home improvements. In 2013, homeowners may be eligible for a credit worth 10% of the purchase price of certain qualified energy-efficient products, including insulation, windows, furnaces, and water heaters. You can claim a credit of up to $500. If you install a wind turbine, solar power system, or geothermal heat pump, you may be able to claim a credit of 30% of the cost of the item with no upper limit on the credit you can claim.
Copyright © Integrated Concepts 2013. Some articles in this newsletter were prepared by Integrated Concepts, a separate, nonaffiliated business entity. This newsletter intends to offer factual and up-to-date information on the subjects discussed, but should not be regarded as a complete analysis of these subjects. The appropriate professional advisers should be consulted before implementing any options presented. No party assumes liability for any loss or damage resulting from errors or omissions or reliance on or use of this material.