Tax Write-Offs For HomeownersAccording to Benjamin Franklin, there are two things certain in life: death and taxes. The good news is that there are many tax benefits associated with home.
Tax Write Offs For Homeowners
Tax Write-Offs For Homeowners
According to Benjamin Franklin, there are two things certain in life: death and taxes. The good news is that there are many tax benefits associated with home-ownership. The below tax benefits may be utilized by homeowners, but you should ask your accountant how these may be applied to your situation.
Home Owner Tax Deductions
Each year homeowners are allowed to deduct the interest payments made on their mortgage loan from their federal taxable income as well as the amount paid in property taxes. Under the new Tax Reform and Jobs Act, there is no longer an income elimination for mortgage interest deductions. However, there is a cap of $10,000 on the amount of property taxes that can be deducted from federal taxable income.
Another possible deduction is your mortgage insurance premium. This also can be deducted from your taxable income if your adjusted gross income is less than $109,000 married filing joint, or $54,500 filing separately.
Taxes and Selling Your Home
Purchasing real estate is often called one of the best financial investments because the equity you gain on a personal residence is tax-freeâ€¦with restrictions. Homeowners do not need to pay tax on income received from a home sale as long as theyâ€™ve lived in the home for the past 2 years, or have resided in the home for 2 out of the last 5 years and if they have made less in profit than $250,000 if filing single, $500,000 if filing jointly. If sellers meet these requirements, it means they do not have to pay taxes on the profits from selling their house, although there is additional math involved to verify if anything is owed.
Tax Deductions While Buying a Home
Many new home buyers question whether or not they can itemize closing costs on their tax return. Most closing costs are not tax-deductible. Pre-paid interest and discount points are the only two that can be deducted. The pre-paid mortgage interest can be deducted all at once, but under the new Tax Reform and Jobs Act, discount points must be prorated over the term of the loan.
Home Repairs and Renovations
The expenses from home renovations and repairs are not tax-deductible. You may be able to deduct these expenses from your business income if you operate a business out of your home and hang onto those receipts as expenses for improvements may be deducted when determining capital gains. Additionally, the interest paid on a home equity loan can be deducted on your tax return, but only if the proceeds from the loan were used for repairs and renovations on the home.
Homeowner Expenses That Are Not Tax Deductible:
- Closing costs such as Appraisal Fees, Title Insurance, and Credit Report Fees.
- Down Payments or Earnest Money Deposits
- Homeowners Insurance
- Homeowner Association Fees
- Transfer Taxes
- Utility Costs
Speak with your tax professional about which deductions you are eligible for and whether or not it is in your best interest to itemize the various homeowner costs on your tax return this year..
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