With the housing market improving significantly in some regions of the country, many people are becoming new homeowners.
Congratulations for being amongst the property owners. You’ve just taken another step up the American-dream ladder and are a homeowner. Amongst the joy of plumbing, painting and yardwork, you now have some new tax considerations.
The great news is that you can eradicate many home-related expenses. These tax breaks are obtainable for any home – single family residence, mobile home, town house, cooperative apartment or condominium. Many homeowners enjoy tax breaks even when they sell their residence.
The bad news is, to take full advantage of your home, your taxes will likely get more complicated. In most cases, homeowners itemize. For many homeowners, the effort of itemizing is well worth it at tax time. Some, however, might find that claiming the standard deduction remains their best move.
Here are some home-owning related tax breaks you may be missing:
1. Points on home mortgage and refinancing: if you bought a home in 2015, with a mortgage, then in addition to the mortgage interest (which may not be a lot if you bought late in the calendar year), you can probably write off the points (both origination and discount points) on your tax return, says Jason Walowitz. One point is equal to 1% of the principal loan amount. That’s because the IRS considers points to be prepaid interest.
2. Interest on home-improvement loan: the IRS considers the interest on a home-improvement loan fully deductible, up to $100,000 in debt. In addition, interest paid on a home equity line of credit (HELOC) is also tax-deductible.
3. Property tax: property taxes are almost always tax-deductible, and more than half (54%) of American homeowners take this deduction, according to the Congressional Research Service. Military service members (as well as clergy members) however can also write off real estate taxes and home mortgage interest even if they receive a housing allowance.
4. Residential energy-efficient tax credit: if you made efforts to make your home more energy efficient by installing equipment like storm doors, energy-efficient windows, asphalt or metal roofs, insulation, air-conditioning and heating systems, the IRS wants to give you a tax credit of up to $500.
5. Renewable-energy tax credit: if you’ve installed equipment that uses renewable sources of energy, such as the sun and wind, to help power your home, you may be eligible for the Renewable Energy Efficiency Property Credit. You are eligible for this tax credit up to 30% of the cost of the equipment, installation included so long as the equipment is placed in service by the end of December 2016.