Tax Breaks That You May Have From Owning A Home
Owning a home is enjoyable for reasons beyond enhanced privacy and additional space. Some people buy a home to take advantage of the many tax breaks provided to homeowners. However, plenty of those who rent an apartment or live with their parents are unaware these tax breaks exist. Once you know about the many different tax breaks available for homeowners, owning your own place seems that much more financially feasible. Without further adieu, let’s take a look at the tax breaks available for homeowners.
Property Taxes are Deductible
Homeowners are legally permitted to deduct the property tax the lender pays on their behalf. Though tax reforms have limited the amount of local and state taxes that can be deducted, most tax filers can deduct upwards of $10,000 worth of property tax on their tax returns. If the property taxes are paid by way of an escrow account with the lender, meaning they are tacked onto the monthly mortgage payment and subsequently paid by the lending institution, the aggregate tax paid will be displayed on the IRS Form 1098. This deduction can be directly deducted from your end-of-year taxes. Those who pay taxes to their local municipality must keep a record of the money paid for end-of-year tax purposes. Finally, it is even possible to deduct taxes reimbursed to the seller if that party prepaid while owning the property.
Deduct the Interest on the Home Loan
The interest paid to the lending bank or other financial institution can also be deducted from your end-of-year taxes. Count every penny you paid in interest throughout the year, deduct it from your taxes and you will find owning a home is not as expensive as initially assumed.
Deduct Private Mortgage Insurance Premiums
Private mortgage insurance or PMI for short, is the insurance coverage lending institutions often require home buyers to purchase if putting 20% or less down when buying the property. The purpose of this insurance is to protect the lender against default. Those who itemize and have an insurance contract that started after 2006 will be able to deduct their PMI.
Deduct the Closing Costs and Points
Closing costs are an inevitability when purchasing a home. Such costs are those borne when processing the home’s sale. There are also fees required to check the property’s title. The lender charges points to boot. There are even some fees to for property appraisal, drafting the contract and recording the sale. Unfortunately, plenty of homeowners are unaware of these fees. Some fees are attributable to the new home’s cost basis yet some can be deducted in full while others are eligible for partial deductions.
In regard to the fore-mentioned lender origination points, a single point is equivalent to one percent of the mortgage. Deducting points has the potential to be somewhat complicated. When in doubt, consult with your tax specialist to ensure all of the proper deductions are accounted for.
Tax Incentives for Energy-efficient Upgrades
Though many of the tax breaks for making your living space energy-efficient are no longer available, a few still remain. Homeowners who add solar panels for electricity and/or water can claim tax deductions all the way through 2021. However, these tax breaks gradually decrease as time progresses. The law states 30 percent of such expenditures qualify for the credit if installed before the first day of 2020. This percentage decreases to 26 for those who have the installation performed in 2020.
Tax Deductions for Aging in Place
SeniorLiving.org states aging in place is defined as an individual who makes the conscious decision to remain in his or her home for as long as possible. The addition of supplementary services to enhance living conditions and ensure a high quality of life qualify can be deducted from taxes. In a nutshell, any aspect of your home that you spend money on to help with the aging process is tax deductible.
As an example, the money you spend to add grip bars to your bathtub or install a wheelchair ramp to ameliorate home access are tax deductible. Even the money you spend to lower the height of cabinets for easier access can be deducted. If you have any questions as to which home improvements are tax deductible, discuss the nuances of tax laws with your accountant or another tax professional.