April 15th is quickly approaching which means income taxes have probably been on your mind. Although Tax Day can be stressful and tedious, sending your paperwork to Uncle Sam can provide some benefits in return, especially if you own your home.
If you’re currently renting and are considering purchasing a home instead, it’s important to learn how can provide advantages when income tax season rolls around.
While taking advantage of deductions and credits for your home means you’ll need to itemize your taxes, the benefits usually outweigh the hassle it took to get all the information together.
Here are several deductions you may qualify for on your income taxes.
Owning a home can make your money work to your advantage instead of contributing to your landlord’s bottom line. Paying off a mortgage, however, also means paying off interest in large amounts, especially during the first several years of the loan term when interest makes up the majority of your payment. Thankfully all of your mortgage interest is deductible on a secured loan for your primary home. You can also deduct interest from a secondary home loan if you occupy it for at least 14 days a year or 10 percent of the days you rented it out as a vacation property. However if your total loan amount is more than $1 million, the mortgage deduction does not apply.
Installing energy-saving upgrades in your home can make a positive difference for your wallet each month, and can also provide tax breaks in the year you made the improvement. Examples include energy-efficient windows, solar panels on the roof, a new furnace, or new air conditioner. However there are limits to this credit (and it can change from year to year), so make sure to research the specific item you’re looking to upgrade before you make any decisions.
Real Estate Tax
Both state and local real estates taxes, paid to the tax assessor, are deductible on your primary and secondary residences. This tax is assessed every year, so it will need to be noted each time you file.
When you finance a home, the lender charges fees known as mortgage points to establish the loan. (The buyer or seller can pay these fees—that decision can be handled during the negotiation process.) The government considers these points as mortgage interest paid in advance, so you qualify for deducting the mortgage points for the year the home was purchased or sold. But if you refinance your mortgage, the points are deducted over the life of the loan. Learn more about mortgage points.
Home Sale Profits
If you sell your home for more than you bought it for, that means you have acquired income. And with home prices on the rise, that can potentially be a significant amount. Fortunately the government allows sellers tax breaks on income gained from home sales. Individuals are exempt from paying taxes on up to $250,000 in sales gains, and married couples filing jointly are allowed up to $500,000. Homeowners must have lived in the home for two of the last five years prior to selling.
These are just a few of the tax benefits of owning a home, so make sure to speak to a tax professional for advice on your personal situation before you file your income taxes. When you’re ready to sell or buy a home, no matter what time of year, The Adler Home Team can meet your needs!