Write-Offs Uncle Sam Wishes You’d Forget

Write-Offs Uncle Sam Wishes You’d Forget

As a homeowner, you can benefit from tax breaks that can shave thousands of dollars off from your IRS bill each year, which could mean a higher refund check.  Since it’s that time of year we are all gathering our documents and working on getting out taxes in asap, I wanted to  remind you about what owning a home can do to help your tax situation.   

And if you currently rent, becoming a homeowner means you’ll get some tax benefits that could make you like filing your tax return.

Read over the list below to see what could pertain to your situation. There are other deductions you might be able to take that I haven’t listed here, so be sure to always consult with your tax advisor.  This isn’t tax advice, just a reminder of what to talk to your accountant about!

• Mortgage interest.  If your home was purchased before Dec. 16, 2017, you can deduct the mortgage interest paid on your first $1,000,000 in mortgage debt. For mortgages taken out since that date, you can deduct the interest on the first $750,000. You’ll want to talk with your accountant about whether it’s better to deduct the mortgage interest or taking the standard deduction instead. The standard deduction is currently $13,850 for single filers and $27,700 for married taxpayers filing jointly.  If you decide to deduct the mortgage interest, you’ll need to itemize your income taxes in order to claim this. Don’t just fill out the 1040-EZ without doing the math first to see whether itemizing or the standard deduction will result in the lowest tax bill – or highest refund – for you.

• Property taxes. Property taxes on all real estate are fully deductible. When you buy a home, check the settlement sheet to see if you reimbursed the seller for property taxes he or she prepaid for a period you actually owned the home. If so, include that amount in your property tax deduction.

• Credit for green improvements. If you make qualified energy-efficient improvements to your home after January 1, 2023, you may qualify for a tax credit up to $3,200. The credit equals 30% of qualified expenses including things like energy efficient exterior doors and windows, insulation and air sealing materials, and even things like air conditioners and heat pumps. To learn more go here or check with your tax preparer.

• Investment Property/Rental Property. The cost of maintaining and marketing a rental property can be deducted from the income the property generates, without regard to the owner’s tax status. These expenses include mortgage interest payments, insurance, utilities, maintenance, repairs, advertising costs and management fees, as well as the non-cash cost of depreciation.

• Home office. You can deduct the costs of a home office that you use exclusively as your principal place of business.  This one is notorious for causing audits, so if you are going to claim this one, but sure to talk with your accountant about your situation and whether you qualify. 

• Tax-free rental income. If you rent out your own home for 14 or fewer days during the year, the rental income is tax-free.
• Capitol Gains:  Remember, if you sold your principle residence, that you may not have to pay tax on the gain.  The IRS typically allows you to exclude up to $250,000 of capital gains on real estate if you’re single and $500,000 of capital gains on real estate if you’re married and filing jointly.  If you are selling an investment property, that’s where it gets a little more complicated, but you could do a 1031 exchange to avoid paying capitol gains on that sale as well. 

So, there you have it—the basics of tax benefits for being a homeowner.  There are others, so be sure to talk to your accountant.  At the very least, take advantage of these. 

And, if you don’t have an accountant and want to use one this year, we have several we can recommend.  Just reach out to us at kurrleteam@firsthome.com and we’ll get you in touch. 

The only question now is, how are you going to spend that big refund check?  We’d love to know!