At this stage in the game, owning a home will still provide you with substantial tax savings. Many Americans have filed their taxes with still many waiting until the last minute. Homeowners should know that there is more available than just the deduction of the interest.
The interest that you pay on your mortgage remains tax deductible within limits. Married couples filing jointly can deduct all of the interest payments on a maximum of $1 million in mortgage debt secured by a first or second home. The maximums are halved for married taxpayers filing separately. Of course, it goes without saying that you cannot get this deduction if you paid cash for your home. If your mortgage required private mortgage insurance (PMI), the PMI premiums are tax-deductible for mortgages taken out in 2007-2011. The amount of deduction depends on your income. If your household income is over $100,000 per year, the deduction starts to phase out.
Your mortgage lender will charge you a variety of fees, one of which is called “points.” One point is equal to 1% of the loan principal. One to three points are common on home loans, which can easily add up to thousands of dollars. You can fully deduct points associated with a home purchase mortgage. Refinanced mortgage points are also deductible, but only over the life of the loan, not all at once. Homeowners who refinance can immediately write off the balance of the old points and begin to amortize the new. It is possible to deduct some of the interest you pay on a home equity loan or line of credit. The IRS, however, imposes a limit on the amount of debt you can interpret as home equity.
If you have done significant remodeling to your home, you can deduct the interest with no dollar limit. The work must be considered “capital improvement”, however. That means you have made improvements that have significantly improved the value of your home. If you do increase square footage, keep in mind, this could trigger a reassessment of property taxes. Painting, patching a root, repairing tiles, etc. usually are not considered to be a part of this deduction.
Real estate taxes (a.k.a. property taxes) are fully deductible from your income. If your property taxes are escrowed, those taxes must be recorded as paid before you can deduct them.
If you use a portion of your home exclusively for business purposes, you may be able to deduct home costs related to that portion, such as a percentage of your insurance and repair costs, and depreciation.
If you decide to sell your home, you will be able to reduce your taxable capital gain by the amount of your selling costs. Real estate broker’s commissions, title insurance, legal fees, advertising costs, administrative costs, and inspection fees are all considered selling costs. All selling costs are deducted from your gain. Your gain is your home’s selling price, minus deductible closing costs, selling costs, and your tax basis in the property.
Married taxpayers who file jointly now get to keep, tax free, up to $500,000 in profit on the sale of a home used as a principal residence for two of the prior five years. Single folks (including home co-owners if they separately qualify) and married taxpayers who file separately get to keep up to $250,000 each, tax free.
If you move because you got a new job, you may be able to deduct some of your moving costs. To qualify for these deductions you must meet several IRS requirements, including that your new job must be at least 50 miles farther from your old home than your old job was. Moving cost deductions can include travel or transportation costs, expenses for lodging, and fees for storing your household goods.
Owning a home remains a solid tax exemption. Most tax filing services can provide homeowners with the updates needed to get the most tax savings available for your situation. When it comes to taxes, we all want to be able to keep more of our hard-earned income.
Source: “Homeowner Tax Deductions.” Nolo.com. Web. 24 Mar. 2013.
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