Tax season is here; are you prepared? See how homeownership can bring you extra tax deductions.
San Diego home prices are on the rise and the marketplace is growing stronger with more people interested in homeownership, although supply remains low.
Pride of homeownership is just one of many benefits. But, especially in the month of April, homeowners look for those extra advantages that come in the form of tax breaks which are available on all types of homes.
Understanding which expenses can be deducted will help you make sure that you’re getting the full benefits of homeownership. Be sure to consult with a certified public accountant (CPA) for your particular situation but the following provides a foundation.
Mortgage interest: one of the biggest and most well-known breaks is the tax deduction that homeowners get when they carry a mortgage. The interest paid over the course of a year is currently deductible as an itemized expense on tax returns. This also applies to home equity loans. Generally, you can deduct interest on the first $1 million of your mortgage and you can deduct interest on the first $100,000 borrowed on a home equity loan or line of credit.
The IRS states in its Publication 936, “How much you can deduct depends on the date of the mortgage, the amount of the mortgage, and how you use the mortgage proceeds.”
Are you getting the full benefits of homeownership?
Mortgage insurance premiums: depending on your Adjusted Gross Income (AGI), you might be able to deduct the premiums paid. But this could be the last year for this deduction, unless Congress renews it. As your Adjusted Gross Income rises, this deduction disappears. Check with your CPA.
Home office: with so many people working remotely from their home offices, the home office deduction is a tax break you don’t want to overlook. Included in this deduction are things like the space used for your home office such as an office room, garage, or other space that is regularly and exclusively used for your business.
“Generally, deductions for a home office are based on the percentage of your home devoted to business use. So, if you use a whole room or part of a room for conducting your business, you need to figure out the percentage of your home devoted to your business activities,” according to IRS publication documents.
However, calculating this can be difficult. The IRS offers two ways to determine your home office deduction: Simplified Option vs. Regular Method, you can compare the two here. The differences involve things like whether or not you calculate depreciation of the portion of the home used and determining the actual expenses and maintaining records.
Home improvements: this can be a tricky to determine so be sure to consult with the experts. Always keep meticulous records about the home improvements and repairs that you have done for your home. This will be necessary to determine if you’ll get a tax deduction and if you decide to sell the home, the records could help increase the value of your home and possibly give you tax breaks (such as reducing the amount owed on the sale of your home).
Some energy-efficient products will provide a tax break; you can check the list here.
Remember, laws are frequently changing and being modified, so be sure to review all your home records with your CPA to make sure that you’re receiving the full benefits of homeownership.
Income taxes started during the Civil War in 1872 when a revenue bureau was set up to collect taxes levied to support the war effort in the North.
The tax expired in 1872 but the Commissioner of Internal Revenue and its successor have remained in business since.
The first Tax Day was on March 1, 1914. It was later moved to April 15 so the IRS could spread out the work of processing all the forms.
Source: The National Constitution Center.