Paying taxes is not something anyone likely enjoys, but finding new ways to legally save more money on taxes by claiming new or overlooked tax deductions can make it at least interesting. Owning a home can give you several ways to save on taxes—and there may be some you are not yet claiming—but could.
You probably already are aware of some common tax deductions many homeowners take, but do you know about these overlooked tax deductions?
Interest on Your Mortgage
When buying a home, you pay interest on the amount you borrowed to get it. If you are married and filing jointly or single, you can deduct the interest paid on your mortgage up to $750,000 of the principal balance. If married and filing separately, each person can deduct up to $375,000.For people that purchased their home between Oct. 14, 1987, and Dec. 15, 2017, you can deduct all the interest paid up to $1 million, for as long as you have the mortgage. If you purchased your home before Oct. 14, 1987, you can deduct all the interest you paid.
Interest on a Home Equity Loan
Taking out a home equity loan on your home is one way to take advantage of the equity you have in it. Once you have the money, you can use it any way you want. BusinessInsider reveals that the interest you pay on this loan is tax-deductible—but only the amount you use to improve your home.Be aware that there is a limit on how much interest you can deduct on a mortgage. Once you reach that maximum amount, you cannot deduct more from your home equity loan.
Private Mortgage Insurance
You can deduct the cost of your premiums for private mortgage insurance (which is required when you borrow more than 80 percent of the purchase price of your home). Investopedia says that you must have purchased the home after 2006 for this tax deduction and make less than $54,500 per year as a couple filing separately ($109,000 married filing jointly)—or you cannot claim the deduction.Discount Points
Getting a better interest rate on your mortgage is possible when you pay discount points. Lenders often let customers that want a lower interest rate by a point or two. One point equals 1 percent of the loan.You can deduct discount points from your taxes, says RocketMortgage. Make sure not to deduct the loan origination points, because they are not deductible.
If you are buying a second home, your ability to deduct discount points works differently. Kiplinger says that although you cannot deduct them in the year you buy your second home, you will have to deduct the cost of the discount points over the life of the loan.
Expenses for a Home Office
Qualifying your home office as a tax deduction is something you need to be careful about. This type of claim led to many IRS audits in the past. In order to have a legitimate tax deduction for your home office, NerdWallet says the space must be used regularly and exclusively for your business. It can also be a separate structure on your property, or—even part of a room. The IRS allows square foot calculations for a simplified option at a rate of $5 per square foot, for a maximum of $1,500 using this method.Many tax deductions are available for a qualified home office, the IRS says, including the proportionate (by square footage) cost of utilities, mortgage interest, repairs, maintenance, depreciation, and rent. You can also deduct many of your home office expenses as business expenses.
You cannot use this deduction if you are an employee that works from home. A home office deduction can only be used by the self-employed. Kiplinger reports that this change took place in 2018.
Credit for Charging Equipment of Electric Vehicles
Buying a home-charging unit for your electric vehicle can enable you to get a tax credit, says Kiplinger. You can get credit for 30 percent of the cost of the recharging equipment, with a maximum credit of $1,000.As of 2023, credit will be given for specialized charging equipment that is bidirectional. The new equipment enables you to charge your car’s battery, power your home, and even direct power to the electric grid.
Energy-Efficient Appliances
Adding new energy-efficient solar water heaters or solar panels to your home can give you a tax credit. The solar water heaters must have a certification from the Solar Rating and Certification Corporation or a similar organization. There are several qualifications you need to meet to be able to get the tax credit. You can learn more from EnergyStar.Home Improvements for Medical Purposes
When someone in your home needs help getting into or around your home, and you make some home improvements to make it more accessible, the cost is fully deductible, according to NerdWallet. It includes additions, such as building an entrance ramp, widening your doors, and adding support bars or railings.Although these additions do not necessarily increase your home’s value, remember that additions designed to raise the value only allow for part deductions of the cost.
With these homeowner tax deductions, you can keep more money in your pocket when tax time rolls around. Multiple tax breaks for homeowners can give you enough money to take a vacation and have some fun—almost letting you look forward to next year’s tax time.
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