Let’s Dive into Tax Breaks for Homeowners!
Looking for tax breaks for homeowners that you can take advantage of? Let’s take a look at options.
Buying a home requires a fair chunk of change these days, and even with a significant down payment, you’ll have to budget for monthly mortgage payments, homeowner’s insurance, property tax, and of course, ongoing maintenance to protect your investment.
You’ll be happy to hear, then, that there are tax breaks for homeowners specifically designed to help you save a little money following this major purchase.
Which payments can you save on? Is homeowner’s insurance tax deductible? What about property tax? How can you benefit from owning a home when it comes to filing your annual income tax returns? These questions and more are answered below.
Deduct Your Mortgage Interest Payments
You’ll find that the bulk of monthly mortgage payments goes to interest early in the life of the loan, while the percentage that goes toward principal increases over time. The good news is that you can deduct your mortgage interest payments on your Primary Residence from your income taxes.
This is a huge boon when you first buy your home and are adjusting to new monthly payments. If you’re looking for a new homeowner tax credit or deduction to add to this, remember that you can also deduct the value of any points you bought to reduce your mortgage interest rate.
Deduct Annual Property Tax Bills
No matter where you live, you’re going to pay property taxes, so you may naturally be interested to find out whether you have a claim for homeowners’ property tax exemptions. Like mortgage interest, you can deduct property taxes up to a threshold of $10,000 annually (or $5,000 if married and filing separately).
There is one caveat here. The $10,000 limit includes your deduction for state and local tax payments. In other words, if you deduct $5,000 in state tax, you can only deduct up to $5,000 in property tax payments.
Improving Your Property? There’s a Deduction for That
Whether your home is dreadfully outdated, you need a new roof, or it’s simply not your style, you might want to put some money into upgrades and renovations. Is there a homeowners’ tax credit for home improvements?
If you take out a home equity loan or home equity line of credit (HELOC) for the specific purpose of improving your property, you can deduct the interest payments on your taxes, so long as the work is considered to be a capital improvement (adding value or extending the usable life of your property).
Remote Work Could Save You Money
Recent trends have seen many professionals moving into remote work situations. If you’re self-employed or do freelance work, you can deduct the expenses associated with a home office, within limits. Deductions are based on the square footage of your office compared to the square footage of your home.
Make the Most of Moving Expenses
While there isn’t a specific first-time homeowners’ tax credit aside from the deductions every homeowner enjoys, you might be able to save on the cost of moving to your new home if the move is related to changing jobs.
Expenses like transportation, lodgings, and storage fees associated with your move could qualify for a tax deduction if you meet specific requirements, namely that your new workplace is 50 miles further from your home than your previous job was.
A primary residence is the biggest asset many adults own, but that doesn’t mean you should spend more than you have to. With tax breaks to help you save, you can make the most of this major investment.
As always, it is best to consult a Tax Professional to learn more about these and other possible tax breaks that can help add savings to all the other benefits of owning a home!