Home ownership comes with various tax benefits, including the ability to deduct certain expenses from your taxable income. As a homeowner, it's important to understand the various tax deductions available to you in order to maximize your savings.
This article will explore the top home tax deductions that every homeowner should know about, including mortgage interest, property taxes, and more. Utilizing these deductions can reduce your taxable income and lower your overall tax bill.
Home tax deductions can help to reduce the amount of taxable income and lower a homeowner's overall taxes. These deductions may come in the form of mortgage interest, property taxes, energy-efficient home improvements and renovation expenses, home office costs, and swimming pool-associated expenditures.
With these items taken into consideration when filing a return, homeowners can anticipate their total taxable income to become lower and save money on their annual tax bill. Knowing what qualifies as a deductible expense is essential for every homeowner to ensure that all possible qualifying items are taken into account.
Understanding home tax deductions is important for homeowners because it can lead to significant tax savings. By taking advantage of available deductions, homeowners can lower their taxable income and reduce their overall tax bill.
Homeowners must remain mindful of the ever-evolving tax laws and regulations as they can make a difference in their home deductions. Staying informed is essential for staying ahead when it comes to claiming all available home tax deductions.
Here are several essential home tax deductions that every homeowner should be aware of for optimal savings:
Mortgage Interest Deduction:
Homeowners have the opportunity to reduce their taxable income by taking advantage of the Mortgage Interest Deduction, allowing them to deduct any interest paid on their mortgage. This deduction applies to primary residences as well as second homes and can result in substantial tax savings for homeowners.
Calculation of Mortgage Interest Deduction
Meticulously determining the mortgage interest deduction is a straightforward process. Homeowners can deduct the amount of interest they paid on their mortgage for the tax year. This information can be found on the lender's annual statement or the homeowner's mortgage interest statement (Form 1098).
It's important to note that there are limits to the amount of mortgage interest that can be deducted, which change yearly. For example, in 2021, the limit was $750,000 for mortgage debt incurred after December 15, 2017. Homeowners should consult a tax professional for guidance on the current limits and determine their eligibility for the mortgage interest deduction.
Property Tax Deduction:
Property taxes are another common type of deduction for homeowners. The amount of property taxes that you can deduct depends on the state you live in but generally speaking, it's possible to deduct up to $10,000 from your taxes.
If you wish to claim a property tax deduction, it must apply solely to the value of your personal possessions and be charged yearly; no matter when the government collects payment from you. Subsequently, since the state tax is only applied at the time of purchase, it does not fit in with the IRS definition of a deductible personal property tax.
Energy-Efficient Home Improvements Deduction:
For homeowners who have made energy-efficient improvements to their homes such as installing solar panels or new windows and doors, it may be possible to take advantage of an energy efficiency tax credit. These credits range from 10% to 30% depending on the improvement and can provide significant savings come tax time.
To claim the Residential Energy Efficient Property Credit on your tax return, prepare your return on eFile.com and we will prepare and help complete Form 5695 with your return.
Home Office Deduction:
If you're running a business out of your home, it's important to remember that certain deductions are available for your home office setup. This includes utilities and other expenses associated with the maintenance of your office space and any equipment or furniture used exclusively in your workspace.
To be eligible for the home office deduction, you must meet at least one of these requirements:
Utilize exclusively or routinely: To qualify for a home office deduction, you must utilize the property that is physically attached to your residence or on the same parcel of land as your dwelling - such as an apartment, boat, condominium unit, and mobile house. Furthermore, it may include buildings distanced from the main structure but located on the same piece of real estate like detached studios and garages. However, this does not apply when using part of one's property exclusively for businesses in hospitality-related industries like hotels or motels.
Official business address: When crafting your home office, it should be either the main location of your business or a room where you often meet with customers. Remember that there are exceptions to this law such as daycare and storage facilities.
If you're hoping to deduct the full cost of your pool from taxes, it must be used solely for medical purposes. This means recreational use would disqualify any chance to claim installation costs as a home improvement expense on your tax return.
Maintaining a pool can be costly, but the good news is that you may be able to take advantage of tax deductions. If your pool has been installed for medical purposes only and your condition qualifies as a home improvement expense, then any operation or maintenance costs associated with running the pool are all eligible for tax breaks. That could include expenses related to keeping it clean like chlorine levels or even heating up the water!
So don't forget to look into potential savings when filing taxes this year!
By utilizing these top home tax deductions, homeowners can reduce their taxable income and lower their overall tax bill. It's important to note that the eligibility requirements and calculation of each deduction may vary, so it's important for homeowners to consult a tax professional for guidance.
Tax season is upon us yet again. Hopefully, you have been keeping good records throughout the year and are prepared to file. To maximize your tax return, ensure that you tap into all of the deductions for which you are eligible.
The list provided above is by no means exhaustive but covers some of the more popular items that people tend to overlook. As always, consult with a tax professional if you have any questions or need help determining which deductions apply to you.