As a homeowner, you can benefit from tax breaks that can shave thousands of dollars off from your IRS bill each year, which could mean a higher refund check. Since it’s that time of year we are all gathering our documents and working on getting our taxes in ASAP, I wanted to remind you about what owning a home can do to help your tax situation.
And if you currently rent, becoming a homeowner means you’ll get some tax benefits that could make you feel like filing your tax return. 😊
Read over the list below to see what could pertain to your situation. There are other deductions you might be able to take that I haven’t listed here, so be sure to always consult with your tax advisor. This isn’t tax advice, just a reminder of what to talk to your accountant about!
- Mortgage interest. If your home was purchased before Dec. 16, 2017, you can deduct the mortgage interest paid on your first $1 million in mortgage debt. For mortgages taken out since that date, you can deduct the interest on the first $750,000. You’ll want to talk with your accountant about whether it’s better to deduct the mortgage interest or taking the standard deduction instead. The standard deduction is currently $12,400 for single filers and $24,800 for married taxpayers filing jointly. If you decide to deduct the mortgage interest, you’ll need to itemize your income taxes to claim this. Don’t just fill out the 1040-EZ without doing the math first to see whether itemizing or the standard deduction will result in the lowest tax bill – or highest refund – for you.
- Property taxes. Property taxes on all real estate are fully deductible. When you buy a home, check the closing statement to see if you reimbursed the seller for property taxes, he or she prepaid for a period you actually owned the home. If so, include that amount in your property tax deduction.
- Credit for green improvements. Not a tax break but a credit. It allows homeowners to take up to $500 off their federal income tax for making certain improvements that increase the energy efficiency of their homes, such as water heaters, furnace, heat pump, windows, or roofing.
- Investment Property/Rental Property. The cost of maintaining and marketing a rental property can be deducted from the income the property generates, without regard to the owner’s tax status. These expenses include mortgage interest payments, insurance, utilities, maintenance, repairs, advertising costs and management fees, as well as the non-cash cost of depreciation.
- Home office. You can deduct the costs of a home office that you use exclusively as your principal place of business. This one is notorious for causing audits, so if you are going to claim this one, be sure to talk with your accountant about your situation and whether you qualify.
- Tax-free rental income. If you rent out your own home for 14 or fewer days during the year, the rental income is tax-free.
- Capital Gains. Remember, if you sold your principal residence, you may not have to pay tax on the gain. The IRS typically allows you to exclude up to $250,000 of capital gains on real estate if you’re single and $500,000 of capital gains on real estate if you’re married and filing jointly. If you are selling an investment property, that’s where it gets a little more complicated, but you could do a 1031 exchange to avoid paying capital gains on that sale as well. If learning more about that interests you, reach out to me and we can talk more, and I can also recommend a 1031 expert who can answer all your questions about this program.
So, there you have it—the basics of tax benefits for being a homeowner. There are others, so be sure to talk to your accountant. At the very least, take advantage of these.
And, if you don’t have an accountant and want to use one this year, I have a couple I can recommend. Just reach out to me and I’ll put you in touch with one of them.
The only question now is, how are you going to spend that big refund check? I’d love to know!
I love helping first time home buyers make their first home more affordable and helping sellers looking to move up to their forever home. Let me show you how I can help make your real estate dreams come true.
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864 Grand Avenue, #305
San Diego, CA 92109
First Time Buyers
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