As a homeowner, you may have mixed feelings; joy in ownership combined with the overwhelm of financial obligations. However, the government provides tax relief measures to alleviate these financial pressures. Several tax incentives are available to homeowners, allowing you to enjoy some financial benefits. Nonetheless, it’s worth noting that not all tax breaks can be enjoyed if you claim the standard deduction; you need to itemize your tax return for some.
Key Tax Deductions for Homeowners
There are numerous tax deductions but these are the most impactful ones for homeowners:
1. Mortgage Interest Deduction: With home mortgage interests at an all-time low, buying an expensive home can still result in significant interest. You can deduct the interest on a home loan of up to one million dollars using the 1098 form provided by your bank and Schedule A when filing your taxes. However, this doesn’t apply to a mortgage not used to buy, build or renovate your home.
2. Property Taxes: You’re allowed to deduct property taxes paid to the relevant tax authority, either directly or through escrow. Furthermore, your portion of taxes paid during closing can also be deducted.
3. Points: If points were paid during your loan closing, you can deduct a part of them. Typically, you can’t deduct the full amount as it must be distributed over the life of the loan. While there are exceptions allowing for a full deduction, you need to meet nine stipulated requirements.
4. Early Mortgage Payoff Penalty: Any penalty incurred on the early payment of your mortgage can also be claimed as a deduction.
5. Ministers and Military Personnel can enjoy deductions on mortgage interest and real estate taxes in spite of having non-taxable housing allowances.
Non-Deductible Expenses
Despite the government’s willingness to facilitate homeowners with tax deductions, remember these expenses are not eligible for deduction:
– Insurance (excluding private mortgage insurance)
– Domestic help costs
– Home depreciation
– Utilities expense
– Deposits forfeited, down payments, earnest money
Homeownership is likely to be your most significant financial commitment, potentially spanning over 30 years. The U.S. government recognizes the importance and expense of homeownership and provides a variety of deductions to make it more affordable. Maximizing these homeownership deductions can significantly reduce your tax liability.
Now, which deductions are most beneficial when filing your taxes?
