You may have heard people saying that owning a home is beneficial for tax purposes, but you don’t fully understand why. Perhaps you know about some tax benefits, but fear you may be missing out on some tax break opportunities. We have compiled a list of our favorite tax credits for homeowners!
While it is true that there are some significant tax breaks for homeowners, sadly the days of your 1040 EZ form filing on your own are long gone. You are going to have to start using the regular 1040 tax form in conjunction with the Schedule A form to really reap the full benefits of your deductions. Seeking the help of a tax professional – particularly during your first year of homeownership – can be an extremely beneficial learning opportunity.
Mortgage Interest Tax Deduction
The Mortgage Interest Tax Deduction is undoubtedly the most popular homeowner tax deduction. As long as your home mortgage is less than $1 million, you can claim all interest paid on your mortgage throughout the calendar year as a deduction when you itemize. Some people don’t realize that this deduction is also fair game for refinance loans or home equity lines of credit if the interest paid is $100,000 or less.
You can also apply your Mortgage Interest Tax Deduction on a second home. Your second home can even be a boat or RV as long as it has cooking, sleeping, and bathroom facilities (and you spend more than 14 days per the calendar year there).
Points Tax Deduction
Many people don’t know that you can also claim a deduction for mortgage points paid if they were used to purchase your primary residence.
Property Tax Deduction
You can claim your property tax on your itemized deduction sheet. Any property tax paid can be claimed, which is a little tricky for your first year living in a home. Use the settlement sheet that you received during closing to determine your deductible tax amount during your first year in your home – your tax professional can help you work this out.
Capital Gains Tax Deduction
When you sell your home, you will also receive a deduction on capital gains as long as you’ve lived in your home for two years or more. There are some exceptions to this rule in the case of unforeseen circumstances, such as death, divorce, job losses that require you to seek unemployment assistance, and multiple children from a single birth, so be sure to include these in your disclosures to your tax professional if they apply to you.
During the housing crash, lots of people were losing their homes to foreclosure. To protect these homeowners from the additional financial hit of a hefty tax bill, foreclosures have now been deemed untaxable.