Owning a home has more tax benefits than other real estate investments. The government has put in place these benefits to encourage people to buy homes. You can save a lot of money if you decide to take advantage of the tax benefits.
One of the tax benefits of owning a home is the homebuyer tax credit. The federal government allows a first-time homebuyer to get up to 10 percent credit of the purchase price.
The buyer will receive the tax credit when they get their first tax return after purchasing the house. The maximum credit given is $8000.
Do you wish to know other tax advantages of being a homeowner? Keep reading to find out:
Deduction of Mortgage Interest
One important tax benefits homeowners can enjoy is the deduction of mortgage interest. The mortgage interest is an interest attached to the loan used to purchase a home. It is a certain percentage of the mortgage loan, which could be fixed or variable.
A homeowner can claim mortgage interest as a tax deduction. To do this, the individual will have to deduct every deductible expense incurred during the tax year on their federal income tax return. This includes mortgage interest or even home improvement mortgage.
Mortgage interest should not be more than $750,000 for married couple filers. Single filers should not be more than $375,000. Claims more than this amount is not eligible for deduction.
For the home improvement deduction, homeowners can deduct up to $100,000 of interest on a home equity line of credit.
The deductions will lessen the amount you’ll pay on your taxable income.
However, note that deductions are only possible if it’s more significant than the standard deductions you’re entitled to deducting.
Speaking to your financial advisor will give you clarifications on the restrictions placed on mortgage interest deductions.
Deduct Real Estate and Property Taxes
Both real estate and property taxes are deductible. But homeowners will have to file for it using Schedule A with their income taxes.
Schedule A is a form for income tax that U.S taxpayers use to itemize their tax-deductible expenses.
However, there is a limit of $10,000 per year on real estate and property tax deductibles for both single or married couple taxpayers.
If you are in the married filing separately category, the limit is $5000. Couples in this category prefer to record their incomes, deductions, and exemptions on separate tax returns.
Note that homeowners cannot deduct foreign property taxes due to a change in law, which is something they could do formerly.
Other tax deductions for homeowners
Other tax deductions include:
Energy Efficiency Tax Credit Deductions
The Internal Revenue Service rewards homeowners who make a conscious effort to use an energy-efficient property. It’s in line with the green energy campaign.
The energy efficiency tax credit covers up to 30 percent of installation costs on any home improvements geared towards boosting energy efficiency.
These include installing solar energy panels, energy-efficient windows, geothermal heat pumps, insulation systems, air-conditioners, and so on.
Homeowners further gain from this initiative as their utility bills decrease while the value of their homes increases.
Home Office Expenses Deductions
Homeowners can deduct spaces used for working from home. This is up to a $5 tax deduction per square foot, which maxes out at 300 square feet of office space at $1500. This deduction is only for self-employed workers.
Adding this deduction can be tasking as the guidelines are strict, but it’s worth trying. Remember, it should be a regular workspace, not a spare bedroom you can convert to a workspace when you wish.
Conclusion
Homeowners should note that conditions are attached to these tax benefits. It’s essential to consult with your consultants to get the breakdown of the tax benefits.