For most of us (except for accountants) tax season isn’t a joyous occasion. However, sometimes there’s some good news for homeowners built into it. Check out these deductions to see if your home can minimize your bill from Uncle Sam.
1) Mortgage Interest
The mortgage interest deduction is the most familiar perk for homeowners when it comes to filing your federal taxes. To encourage citizens to invest in housing, the government allows you to deduct the amount you paid in interest toward your mortgage (for loans less than $1 million).
How much this can save you depends on your income level and your mortgage specifics. For example, if you have a $400,000 mortgage with an interest rate of 5 percent, you will have paid roughly $20,000 for the year. The mortgage interest deduction means you are able to reduce your taxable income. For example, if that income was taxable in the 25 percent tax bracket, deducting it would shave about $5,000 off your tax bill.
This is a simplified explanation, but in general the deduction is worth looking into, especially if you have a large mortgage, a high income, or if you itemize deductions anyway. Intuit has a great breakdown of the mortgage interest deduction with more details.
When you secured your home loan, your broker might have had you pay points to be eligible for a lower interest rate. Since mortgage points are essentially interest paid upfront, the deduction for these works the same way as the mortgage interest deduction. Your eligibility might be restricted according to when you paid the points, so this deduction is particularly helpful if you bought a house in the previous year.
You might also be eligible to deduct points paid for a refinance, either in the year they were paid or over the life of the loan. As with the mortgage interest deduction, you should examine the form 1098 your lender sends to see what might be deductible. For more detailed information about deducting points, check out this informative article from Bankrate. Also, check everything with your accountant or financial advisor.
3) Property Taxes
If you own real estate in Florida, or anywhere else, you pay property taxes. Local governments generate much of their funding from these taxes. Even though Florida has rates at or below the national average, counties in South Florida show average tax bills in excess of $2,000 per year.
The good news is that you don’t have to pay tax on that tax. You can deduct the amount you paid in property taxes from your taxable income. If you have an escrow account set up, you should receive this information from your lender. Just remember that you can only deduct the amount that was actually paid in taxes, not the total that you added to the escrow.
4) Energy Credits
There are still a number of energy tax credits available for homeowners who invest in making their property more energy efficient. These include a credit of 10 percent of the cost (up to $500) for improvements like insulation, ENERGY STAR water heaters, and energy efficient windows. If you made a significant improvement, like adding wind, solar, or fuel cells, you might be eligible for an even larger credit of 30 percent, with no upper limit.
One great thing about energy tax credits is that they reduce your tax burden dollar for dollar, rather than reducing your taxable income. This means they can be worth quite a bit if you qualify. Another great thing is that these improvements reduce your energy costs while they increase the value of your property.
5) Profit from Sale of Home
If you sold your property in 2016, you might also have some positive tax news coming your way. The biggest break is that you can exclude the first $250,000 ($500,000 for married couples) from your capital gains. So if you owned your home for a long time, or you just had great timing recently, you do not have to worry about a large tax bill eating away at your profits.
Certain conditions have to be met, of course. The main one is that this break is intended for your primary residence, which means you have to have lived in the home for 2 of the last 5 years in order to qualify. For other specifics, visit the IRS page for “Sale of Your Home.”
While taxes may be one of life’s certainties, the deductions that go with them change from year to year. Many of the breaks for homeowners are set to expire in December, 2017, so be sure to take advantage of your opportunities to save while they are still available.