“But in this world nothing can be said to be certain, except death and taxes.” — Benjamin Franklin
If Ben Franklin were around today, he might also mention that being a homeowner certainly has its tax benefits. As the year comes to a close, it’s time to start gathering receipts and paperwork in preparation for tax season. Here are some reminders on what you can and can’t write off.
All potential deductions listed below are only applicable if you itemize, which means you anticipate that your write-offs will exceed the standard deductions.
Can: Mortgage interest
You can subtract any interest paid on your mortgage for a calendar year from your taxable income. Your mortgage provider will send you a Form 1098, also known as a Mortgage Interest Statement, which will have the amounts calculated.
Can: Mortgage points
Pre-paid interest on a mortgage—known as discount points—can help lower your interest rate AND is tax deductible. For example: If you paid $1,500 for one mortgage point in exchange for a lower interest rate, you can also subtract that amount from your income to lower your tax liability for the year.
Can: Property taxes
Three questions you have to answer “yes” to in order to qualify for this tax benefit: Are you the owner of the property? Do you plan to itemize your deductions? Is the property for personal use? This could apply to the property taxes for your residence, vacation home or land (perhaps a hunting lease).
Can: Uninsured casualty losses
If you experienced a natural disaster or theft on your property, any losses that were not covered by insurance may be claimed as a deduction. Even if you received an insurance settlement, if your losses exceeded that of the reimbursement, you may still be eligible for the gap in coverage. This applies to your home, vehicles and household items. For details, visit the official IRS website.
Can: Home office
No, that spare bedroom stuffed with boxes does not count if you want a home office deduction, unless you use it regularly and exclusively for business and is also the principal place of your business. There are two different ways to calculate your deduction, one is simplified, using a $5 per square foot standard (up to 300 square feet), while the other requires more a more detailed approach.
Can: Interest paid on home equity loans (up to $100,000)
Similar to the interest deduction from a mortgage loan, the same can be applied to a home equity loan, as long as it hasn’t been used “for reasons other than to buy, build, or substantially improve your home.”
Can’t:
Now for the non-deductible expenses related to a home, to keep you in-the-know when it comes to filling out all those forms and gathering the receipts. You will not reduce your tax liability by claiming most home improvements (those unrelated to modifications due to medical necessity), dues for homeowner’s associations and insurance premiums.
To find out more about how home ownership can help your taxes, contact us to connect with a loan originator today.