As tax season rolls around, you’ll hear a lot of information about tax breaks for homeowners. Here is the low-down on 10 tax deductions you should take advantage of to get the most of your home.* For more details, visit the IRS website at www.irs.gov.
The interest you pay on your mortgage is tax deductible, within limits. If married and filing jointly, you may deduct all interest payments on a maximum of $1 million in mortgage debt secured by a first or second home. You cannot use the $1 million in deduction if you pay cash for your home and later us it as collateral for an equity loan. If you pay PMI (private mortgage insurance), the premiums are tax-deductible if your mortgage was taken out before 2006. Your deduction amount depends on your income.
You can fully deduct points, or lender fees, associated with your mortgage loan. Refinance mortgage points are also deductible, but only over the life of the loan, not all at once.
Equity Loan Interest
Do you have a home equity loan or line of credit? You can deduct some of the interest you pay on that, however the IRS places a limit on the amount of debt you can treat as “home equity.” Your total is limited to the smaller of:
- $100,000 (or $50,000 for each member of a married couple if filed separately), or
- the total of your home’s fair market value minus outstanding debts against it.
Home Improvement Loan Interest
Did you take out a loan for home repairs to increase your home’s value? There is no dollar limit on the deduction of the interest from this loan. However, the work you’ve done must be a “capital improvement” rather than ordinary fixes. Capital improvements increase your home’s value, prolong its lifespan or adapt to new uses. Examples include a new roof, garage, porch, built-in appliances, insulation, heating/cooling systems, landscaping or swimming pools. Repainting, replacing broken tiles, roof patches, broken windows and minor leak repairs do not qualify.
City or state property taxes are fully deductible from your income. You can’t deduct escrow money held for property taxes until the money is actually used to pay them.
Home Office Deduction
If you work from home and use part of your home exclusively for business, you may be able to deduct home costs related to that portion, such as a percentage of insurance and repair costs.
If you decide to sell your home, you may be able to reduce your taxable capital gain by the amount of selling costs. Selling costs include real estate broker’s commissions, title insurance, legal fees, advertising costs, escrow fees and inspection fees. All selling costs are deducted from your gain (your home’s selling price minus deductible closing costs, selling costs and tax basis).
Capital Gains Exclusion
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 and married tax payers who file separately get to keep up to $250,000 each, tax free.
If you relocate because of a new job, you may be able to deduct some of your moving costs. To qualify your job must be at least 50 miles farther from your old home than your old job was. Moving cost deductions may include travel or transportation costs, expenses for lodging and storage fees.
Mortgage Tax Credit
A home-buying program called mortgage credit certificate (MCC) allows low-income first-time homebuyers to benefit from a mortgage interest tax credit of up to 20% of the mortgage interest payments made on a home. The maximum credit is $2,000 per year. You must apply to your state or local government to receive the certificate and the credit is available each year you keep the loan and live in your home with the certificate.
If you have any questions about your mortgage and what tax deductions you may qualify for, contact your mortgage advisor at 1-844-77-vLoan. We’re happy to help guide you to ensure you get the most bang for your buck!*
*Union Home Mortgage Corp. (DBA vLoan) does not provide tax, legal or accounting services. This material is for informational purposes only and should not be relied on for, tax, legal or accounting advice. We recommend consulting your own tax, legal, and accounting advisors regarding the costs and benefits of any potential transaction.