Tax Advantages and the Top 10 Deductions for Homeowners
Tax Advantages and the Top 10 Deductions for Homeowners
Are you sure you’re getting all the tax advantages your home is entitling you to? Here are the top 10 deductions. (Please consult your tax advisor for details.)
1. Mortgage Interest
If you qualify, interest on the loan for your primary residence is fully tax-deductible.
2. Points Paid on a Refinanced Loan
Did you refinance? Then you may be able to write off the points paid for the new loan. One thing to remember: you will have to deduct them proportionately over the life of the loan. If your new loan has a 30-year term, you would deduct 1/30th of your points each year.
If you have refinanced before, and you have points from the previous refinance that you have yet to finish deducting, you can write off the remainder of those points in the year that you refinance.
3. Points Paid on a Purchase Loan
The points you pay at closing when you buy a home are deductible on your income tax statement for that year. If the seller paid some or all of your points for you, you may be able to deduct those seller-paid points.
4. Capital Gains with No Income Taxes
The 1997 Tax Act has made it possible for single homeowners to realize a tax-exempt profit of up to $250,000 once every two years. This is contingent upon the seller having owned and occupied the home as a principal residence during any two of the last five years. Married homeowners who file jointly on their tax returns do not have to pay taxes on up to $500,000 of gain when they sell their primary residence.
5. Home Improvements
Expenses associated with home improvements are not deductible. But remember: making home improvements can increase the purchase price of your home. Keep all receipts from home improvements. This may help you prove your home’s worth at resale, and reduce the potential taxable gain when selling your home.
6. Real Estate and Property Taxes
State and local property taxes can be deducted as an expense against income. Real estate taxes are only deductible in the year they are actually paid to the government.
7. Home Offices
If you have a qualified office in your home, you may be able to deduct costs associated with maintaining the portion of your home exclusively used for business. 100% of expenses related to the office such as painting and upkeep are deductible. A portion of indirect expenses such as the cost of utilities and garbage pickup are deductible as well.
8. Limited Moving Expenses
Any homeowner who has recently relocated for work may be able to write off the cost of moving themselves, their household goods, their vehicles, as well as other reasonable moving costs. Restrictions like this one apply: the new job must be 50 or more miles farther from the old home than the old job was.
9. Health-Related Improvements
Have you made home improvements for medical purposes? If they do not add to the overall value of the home, and have been made for a chronically ill or disabled person, the improvements can be deducted entirely from your taxes. If you qualify, you may be able to deduct a portion of expenses such as a swimming pool for treating polio victims or an air conditioner to alleviate a specific medical condition.
10. Vacation Homes
You can deduct some of the costs associated with owning a vacation home, such as real estate taxes, personal property taxes, mortgage interest, and points.
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