Homeowners can take advantage of many tax deductions that are available to them. The Internal Revenue Service (IRS) gives a lot of ways to reduce your tax bill each year, making it worthwhile to learn about them and claim those tax deductions. Here are some to help you keep more money in your pocket.
The Mortgage Interest Deduction
The tax deduction for mortgage interest on a primary residence is less than it once was, but the IRS says you can still deduct the interest on the first $750,000 if you are married filing jointly or $375,000 if married but filing separately. If you had mortgage interest before Dec. 16, 2017, you can deduct the mortgage interest on the first $1 million.If you have refinanced a mortgage, NerdWallet says you can get a tax deduction, but it depends on the original loan date. If you took out the loan before Oct. 14, 1987, you may be able to deduct all of the interest.
Interest on Home Equity Loans
When the money from a home equity loan or a home equity line of credit (HELOC) is used to improve the home, you can deduct the interest. Money from these loans used for other purposes cannot be deducted. NerdWallet mentions that money from these loans counts as part of your mortgage debt, so if it exceeds that limit, you cannot deduct it.Mortgage Points
The cost of buying points on a mortgage may also be tax deductible. It is added to your mortgage interest. People who meet specific qualifications, the IRS says, may be able to deduct the entire amount in a single year.Most of the time, the interest must be deducted throughout your loan, particularly when buying a second home. Kiplinger says that to get this deduction, you must itemize.
If you had points paid for you by the seller, TurboTax says, you can also get a tax deduction on them.
Property Taxes
The annual bill you get for property taxes may also be deductible. You can deduct up to $10,000 for income, property, and sales taxes ($5,000 if married and filing separately). Bankrate mentions that to get the deduction, you must itemize them on Schedule A, and only those amounts above the standard deduction are eligible, but it does not include homeowners association fees, utility service charges, or transfer taxes.Private Mortgage Insurance
Paying private mortgage insurance will give you a tax break if your income is limited to $100,000 (married or single) or $50,000 if you are married but filing separately. It phases out until your income reaches $109,000 ($54,500 if married and filing separately), and you cannot claim the deduction once your adjusted gross income (AGI) exceeds that amount. Be aware that this deduction may expire, says Forbes, so you will want to watch for rules concerning this deduction in the future.You can also get a tax break on fees from other government agencies. They include:
- Veterans Affairs (VA) loan funding fee
- United States Department of Agriculture (USDA) loan guarantee fee
- Federal Housing Administration (FHA) loan up-front mortgage insurance premiums.
Residential Energy Credits
After installing equipment for alternative energy sources to improve the energy efficiency in your home, you may get a residential energy credit for it. These sources include solar panels, solar electricity, fuel cells, solar water heaters, geothermal heat pumps, small wind turbines, and biomass properties. Credits are often available for these sources, but it may depend on when you bought the property and the type of equipment. Bankrate mentions that these credits may not be available after 2023.Expenses for a Home Office
Having a home business enables you to have a lot of tax deductions. If claiming the home office deduction, the space can only be used for business. You will need to keep good records. You can deduct the following business expenses: the cost of materials, office equipment and supplies, a portion of utilities and homeowners insurance (based on the square footage of the space), cell phones, and more. Some of the cost of your homeowner’s insurance, real estate taxes, mortgage insurance premiums, depreciation, security system, and repairs may also be deductible.You also can deduct the cost of the business use of your vehicles and some travel expenses. Advertising costs, professional services, business insurance, and interest on business loans are deductible. Employees who work from home cannot claim this deduction.
Capital Gains
When you sell your primary home, you may be able to deduct the capital gains from the sale (subtract the initial cost of the property from the selling price). The IRS says you can exclude up to $250,000 from your income if you are single or $500,000 if you are married filing jointly.
You must have lived in the home for two years out of the five years preceding the sale to qualify for the exemption. If you claimed the exclusion on the sale of another home within two years before the sale of this home, you are not qualified to claim it.
The 2023 Standard Deduction
Many of these tax breaks depend on having expenses that exceed the standard deduction, which is $13,850 in 2023 for single filers. Married couples filing jointly must exceed $27,700, and the heads of household must have expenses above $20,800. You can only deduct the amounts that are greater than this limit.Some Things You Cannot Deduct
Although there are many tax breaks you can get, there are also a few things that do not qualify. You cannot get a tax deduction for the following, according to RocketMortgage:- the down payment
- the principal amount of the mortgage payment
- fire insurance
- the premium for homeowner’s insurance
- depreciation
- the cost of utilities
- home improvements—except for medical necessity
- domestic service.
The Epoch Times copyright © 2023. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
