When people think of owning a house, one benefit that doesn’t usually come to mind is that it can lower your tax expenses. If you know the right exemptions and do it properly, you can shave a lot off your tax bill every year. In these times when money can get tight, every bit helps. Here are a few tax incentives you can use to your benefit.
Mortgage Deductions
When you bought your house, you likely took out a mortgage to afford it. The most significant tax deductions from owning a home come from this. First, there is the mortgage interest. Depending on how much a homeowner is paying, they get to deduct the interest that they are paying off. For houses bought later than 2017, individuals can deduce up to $750,000 of the mortgage interest from their tax reports. If they are part of a couple and file separately, this is lowered to $375,000. That is still a lot of money saved from taxes. Additional tax deductions come in the form of mortgage points. When a homeowner takes out a mortgage, there are usually options to pay additional fees to lower interest rates and other advantages. These points can be deducted from taxes.
Building a Home Office
People have been moving to work from home because of COVID-19. Fortunately, it has an additional benefit besides convenience. If you are self-employed or own a business, you can deduct the funds you used to set up the office from your taxes. This is for actual offices that are used regularly. Homeowners can’t sit down in their entertainment room with a laptop and claim it as their office. The size of the deduction can also depend on how large a part of your home is dedicated to business.
Deductions for Energy Efficiency
The government has been pushing for homes to become more energy-efficient, and one of the methods it uses is to have them listed as tax deductions. There are several examples of energy-efficient improvements giving homeowners tax benefits. For example, if you plan to supplement your electricity needs with solar energy or other renewable sources, you can get 26 percent of what you’ve spent on it as a deduction. You can also get a flat $500 deduction for installing energy-efficient improvements,
Paying for Necessary Home Improvements
If you have a disabled or infirm family member, you might have to install home improvements to make their lives easier. The government realizes that this can be expensive, so it can help by offering tax deductions on them. Classified as part of medical expenses, you’ll need to file a form to claim it, and there are limits. You can only deduct a maximum of 7.5 percent of your gross income using this method. Additionally, if these changes increase the value of your house, then the value of the increase is also another limit you have to follow.
Other Taxes
Owning a house also causes you to pay several taxes. While income tax is paid to the federal government, you are still on the hook for state and local taxes. The most notable one is the property tax you have to pay for owning land. Fortunately, you can deduct these taxes from your big income tax payments. It will take some work to do. For one, you have to itemize these taxes and submit a form for them properly. Besides that, you can only get a maximum of $10,000 as a deduction. Anything more than that has to be included in your tax return.
Another major tax that you can use as a deduction is capital gains tax. This only comes into play when you sell your home. If you do, you have to pay for any profit you make with capital gains tax. Since this is also income, you would typically have to pay for it, but you can exempt up to $500,000 in capital gains from being taxed if you file as a couple. Single filers will only have half of that as their deduction.
What You Can’t Deduce
Besides what you can deduct, you should also be familiar with what you can’t deduct from your taxes. You don’t want the IRS to perform an audit on you because you are careless. Several things might seem tax deductible but aren’t. This includes home insurance premiums, stamp taxes for property transfers, the actual cost of getting a mortgage, and homeowner association fees.
Being smart about your taxes should be a priority. Saving some money from your tax bill can add up over time. Better to use that money for something else so that you can get a good return on them. If you do it right and live in your home for decades, you can expect tax savings that can reach thousands of dollars.
Meta title: Lowering Your Tax Expenses With Homeowner Benefits
meta desc: One of the unexpected benefits of being a homeowner is that you can potentially have several tax benefits associated with it. Here are some ways you can lower your bill.
