The benefits of owning a home stretch far beyond comfort and stability. There are also many financial benefits such as home equity and tax breaks as a homeowner.
Tax Deductions for Homeowners
A tax deduction reduces your overall tax liability by reducing your taxable income – but only if you itemize deductions. It’s important to note that how much you save largely depends on your filing status and income. Here are some common federal tax deductions for homeowners:
Mortgage Interest Deduction: You can deduct your interest on the first $750,000 of your mortgage debt. After the end of the tax year, you should receive a form 1098 from your lender with the amount of interest you paid.
Mortgage Points Deduction: If you paid mortgage points when you took out your mortgage, you can receive a deduction for those discount points.
Private Mortgage Insurance: For borrowers that put down less than 20% on a conventional loan, lenders typically charge private mortgage insurance (PMI). PMI protects your lender if you can’t make your payments. You may be able to deduct your mortgage insurance payments on your tax return.
Property Tax Deduction: Once you become a homeowner you’ll have to start paying property taxes. You can deduct up to $10,000 of property taxes if you’re married filing jointly or $5,000 if you’re single or married filing separately.
Home Office Expenses: If you own a small business or are self-employed working out of your home, you can claim home office deductions. Some types of home office expenses you may be able to claim are real estate taxes, repairs, security systems, home mortgage interest, and utilities. Additionally, it’s important to note that there are a lot of conditions as to what you can claim. Consult your tax professional for advice.
Medically Necessary Home Improvements: If you make medically necessary home improvements, those qualify for a medical expense tax deduction. This could include widening doorways, building a ramp or lift, installing railings, etc.
Consult a Tax Professional
As a homeowner, it’s important to pay close attention to your tax breaks – they could save you thousands of dollars. Need help sorting out the details? We recommend consulting a tax professional to explore all of your options. If you need a referral to a tax expert, we can point you in the right direction. Please give us a call at 562.896.2456 or fill out the form below.