Welcome to the Homeowner’s Club! Membership has Its [TAX] Privileges
You are already in the know on what you can deduct from the purchase process and from closing, but what about on-going benefits? I get these tax benefits every year right?
Yes sir, you do get to continue to reap the tax rewards for as long as you own the home.
Those rewards may come and go and their benefit to you may change as your situation shifts along with the political and IRS tides.
Energy Efficient Improvements
Renovating smart with energy efficiency and sustainability at the forefront is smart on so many levels. You save every single month on your energy bills, your house demands a higher price when you get ready to sell, AND the I.R.S. rewards your efforts handsomely.
By making savvy improvements, like installing double-paned windows, attic insulation, a new roof, or new exterior doors, you can deduct up to 10% of their cost (up to a maximum of $500). Upgrade to any energy-efficient equipment – such as your water heater, or furnace – and you get a credit of 30% of the cost.
Creating an energy efficient home is not a political statement, it’s smart business.
Handicap Accessibility & Health-Related Renovations
Widening doors, adding entrance ramps, installing railings, adjusting the height of electrical fixtures, sinks, or other appliances to accommodate wheelchairs can all be tax-deductible.
Home Office Expenses
Be very careful with this one. There are multiple caveats to rightfully claiming this deduction. Too many to list here, do your homework.
Short-Term Rental Income
If you rent out your home for fewer than 14 days, that income is all yours and not taxable. And even if you go for the big bucks — renting for $5,000 or $10,000 a week — it still stays in your pocket (and the expenses of renting aren’t deductible either).
Real Estate Property Taxes
Real estate property taxes paid on both your primary residence and vacation home are fully deductible for income tax purposes.
For the majority of Americans, property tax isn’t going to show up on a W4. Since most escrow those payments in with their monthly mortgage it can be easy to forget the deduction. If you itemize your deductions, it’s certainly worthwhile to add your property tax payments from the given year to your write-offs.
Mortgage Interest Deduction (1st Lien)
The five star deduction. U.S. tax code allows homeowners to deduct the mortgage interest from their tax obligations.
For many people, this is a huge deduction since interest payments can be the largest component of your mortgage payment during the early years of owning a home.
Mortgage Interest Deduction Part 2
In addition to your mortgage interest, you can deduct the interest you pay on a home equity loan (or line of credit).
Using home equity lines can allow you to shift credit card debts to your home equity loan, pay a lower interest rate than those horrendously exorbitant credit card interest rates, and get a deduction on the interest as well.
Capital Gains Tax
If you buy a home as your primary residence to live in for more than two years, then you will qualify. When you sell, you can keep profits up to $250,000 if you’re single, $500,000 if you’re married, and not owe any capital gains taxes.
For as long as I have owned it, my home has been the single biggest tax deduction on my returns. It has saved me more than $30,000 in taxes. It will save you thousands too.