One of the most significant tax benefits you as a homeowner will enjoy is arguably the mortgage interest deduction. This is applied to the interest you pay on your mortgage for your primary place of residence, though it may also apply to your second home or vacation home. For more insight into the specifics of this mortgage interest deduction, check out Publication 530 on the IRS website. Now, to be eligible for the mortgage interest deduction, your house must be used as collateral. This means your mortgage is secured by your home, and it calls for you to take action by itemizing your deductions via Schedule A. But what can you include as deductions? Let’s take a closer look at your options.
Deductions to be aware of When it comes to deducting your mortgage interest, there are limitations in place regarding the amount of interest you can deduct. These limitations are based on a handful of factors, including the date your mortgage was originally secured. If you need assistance calculating your mortgage interest credit, refer to IRS Publication 530. Ultimately, you are free to deduct property taxes that you pay toward your primary residence as well as those pertaining to any secondary homes you own. Just remember, there are limits regarding how much of said property taxes you can deduct. In most cases, you can also deduct the interest you paid toward your home equity loans or lines of credit. This interest is deductible if the loan was used for the purpose of improving your home or even building it. Another example of a relevant deduction is the taxes you paid on your home — both state and local taxes as well as sales tax. How to work around capital gains When you sell your home, you might find yourself owing capital gains taxes on any profits that you make from the sale. That’s why it’s imperative that you understand any and all tax implications of selling your home before you decide to do so. Plus, there are seemingly countless exclusions and deductions that can either reduce or eliminate the amount of capital gains tax you will owe, depending on your situation. For example, you must reside in your primary place of residence for at least two years before you sell your home. Additionally, if you experience a capital loss on the sale of your home, there’s a chance that you could deduct that capital loss on your tax return, though any excess losses can also be carried forward into the future. How the timing of your sale can influence outcomes The timing of the sale of your home can greatly influence your total capital gains or losses. For example, if you sell your house during a year in which you earned a high income, then you might be subject to a higher tax rate on your capital gains. To minimize your tax liability while maximizing your profits, consult with a tax professional who can steer you in the more favorable direction. What if you rent out your home as a landlord? If you rent your home to tenants, you must report their payments to you as a form of income. That said, any expenses you have relating to your rental home might be deductible. However, there are rules in place regarding how long you must reside in your home prior to being eligible to rent it out without having to relinquish your primary residence exclusion, so keep that in mind. How home improvement can affect taxes and credits When you make improvements to your home, you might be eligible for certain tax deductions and credits. For instance, there are tax credits out there that can offset the cost of implementing energy-efficient upgrades, from solar panels and energy-efficient windows to insulation and more. This type of tax credit is typically equal to a percentage of the cost of the overall improvement. Furthermore, you might also be eligible for rebates extended to you by your utility company as a result of your energy-efficient and eco-friendly upgrades. But that’s not all! Home improvement projects rooted in medical assistance — like installing accessibility ramps or widening doorways and hallways — could be deducted as medical expenses in certain situations. Ultimately, it helps to keep detailed records of any home improvement projects that you pursue. Also, as always, consult with a tax professional to determine your eligibility for tax deductions and credits as a homeowner. Hold on to receipts and other proofs of purchase for all things home improvement. Whether you still own the property or you’ve sold it to a new owner, keeping information regarding your homeownership can never hurt. As always, make sure you work closely with qualified tax and financial advisors who can analyze the specifics of your situation. That way you can receive personalized guidance that will ensure you get the most out of your deductions and credits. Harik Thompson CPAs and Advisors is committed to providing exceptional service and delivering tailored solutions to meet our clients’ financial needs. Your satisfaction is our top priority, and we constantly strive to exceed your expectations. As part of our ongoing efforts to better serve our valued clients, we need your help. Your feedback is invaluable and will assist us in refining our services. It will also help potential clients make informed decisions about their accounting, tax, and advisory service provider. Please take a moment to share your feedback by leaving us a Google Review. Thank you very much! Comments are closed.
|
Newsletter articles are posted every 2 weeks. If you would like to have our e-newsletter delivered directly to your inbox, please sign up. Your information is confidential; you can unsubscribe at any time. Subscribe. Categories
All
|