The Tax Man Cometh: Top 10 Tax Deductions for Homeowners
“The only difference between a tax man and a taxidermist is that the taxidermist leaves the skin.” These wise words from Mark Twain’s couldn’t be more prudent today, well over 100 years after he penned this infamous quote.
Without question, homeownership is an expensive endeavor. For many Americans, this undertaking is their biggest expense and most important asset. From purchasing the home to maintaining and repairing it over the years, the expenses really add up. Particularly in today’s economy, homeowners should always take advantage of the tax credits available to them.
Below are my top 10 deductions for homeowners come tax time. Of course, homeowners should consult a financial advisor or tax professional for more information or details.
1. Mortgage Interest: As long your mortgage (or mortgages) does not exceed $1 million, then your mortgage interest can typically be fully deducted.
2. Points Paid: Whether the points were paid on a purchase or a refinance, you may be able to write them off. To deduct the points on a refinance, they must be deducted equally over the entire term of the new loan. In addition, if you have refinanced before, you can still write off the rest of those points in the year you refinanced again. The points you paid on a purchase are deductible on your income tax for that year. In addition, if the seller paid any or all of the points on your behalf, you may be able to deduct those points, as well.
3. Real Estate and Property Taxes: Real estate taxes are deductible only in the year they are actually paid. However, property taxes are eligible to be deducted as an expense against your income.
4. Home Improvements: If you’re in the market to sell your home, home improvements may increase the selling price. However, you cannot deduct the expenses associated with improving your home. The benefit of increasing your home’s value is realized in a tax credit when the capital gains tax (see #5) is assessed.
5. Capital Gains with No Income Tax: Once every two years, single homeowners can accept a tax-exempt profit up to $250,000, as long as they owned and occupied the home as a principal residence during any two of the last five years before they sold. For married homeowners who file joint tax returns, they can realize a tax-exempt profit up to $500,000 when they sell their primary residence.
6. Private Mortgage Insurance (PMI): As long as you bought or refinanced your home on or after January 1, 2007 and have an adjusted-gross income less than $100,000, you can deduct the private mortgage insurance through 2010.
7. Home Office: If you work from home, you may qualify for a deduction of costs associated with maintaining your work area. Direct expenses such as office supplies, paint and upkeep are deductible. In addition, a portion of indirect expenses such as phone, electricity, air conditioning and heat may be deductible, as well. This is determined by the square footage of your home office when compared to the square footage of your entire home.
8. Energy-Efficient Improvements: Don’t expect to get all of your money back, but tax credits are the next best thing if you spend:
• $50 for an air-circulating fan
• $150 for installing an energy-efficient furnace or boiler
• $200 for installing energy-efficient windows
• $300 for installing an energy-efficient central air conditioner, water heater or heat pump
• $150 for installing a qualified natural gas, propane or oil furnace
• $150 for installing a qualified natural gas, propane or hot water boiler
9. Moving Expenses: If you have recently relocated at least 50 miles for work, you may be able to write off the cost of the move.
10. Vacation Homes: As is the case with a primary residence, you can deduct some of the costs associated with owning a vacation home, as well. These deductions include the mortgage interest (see #1), points paid (see #2), and real estate taxes and property taxes (see #3).
Why Total Mortgage?
Total Mortgage is an industry leading mortgage broker and lender, having funded over $4 billion in mortgage loans since 1997. The mortgage professionals at Total Mortgage have become trusted financial partners with thousands of homeowners across the country. From our enthusiastic and knowledgeable staff of licensed loan officers to our proficient and dedicated closing department, and everything in between, Total Mortgage has the tools to get the job done right. Our advanced processing technology allows us to handle each individual file with tremendous attention, while our in-house underwriting offers the speed and flexibility that is not typical of the mortgage industry today. Whether you’re a first-time homebuyer or simply looking to refinance, Total Mortgage offers a variety of products and programs to suit your needs, including fixed-rate mortgages, adjustable-rate mortgages (ARMs), jumbo mortgages, reverse mortgages, FHA loans and more. Visit TotalMortgage.com for today’s current mortgage rates.
Robert Hyder is the web editor and contributing web content writer for Total Mortgage Services, LLC, as well as all related sister sites. Total Mortgage Services, LLC is an industry leading mortgage broker and lender headquartered in Milford, Connecticut. Hyder has been a mortgage and financial services expert since 2005.