If you own a home and are looking to save on your taxes, or if you’re considering buying a home in 2017 and trying to see if you can afford it, here are five valuable deductions that you may be able to claim if you’re a homeowner:
- Mortgage interest
The interest paid on a home loan is typically the largest potential deduction for middle-class Americans. For instance, a 30-year mortgage on a $300,000 at current rates will run you more than $12,000 in interest payments your first year. If you happen to own a second home, too, you can also deduct the mortgage interest on that, as long as it isn’t a rental property.
If you recently purchased a home but paid “points” to the bank in order to get a better rate, that expense is tax deductible in the year you paid them. A point is typically 1% of your loan amount so, on that $300,000 home, you would get a $3,000 tax break for paying down one point. Points on refinance loans and home equity loans are also deductible but must be spread over the life of the loan instead of all in one year’s return, so those are less lucrative but can still ad up.
- Energy credits
If you make expenditures that improve the energy efficiency of your home, you may qualify for a tax credit. These include items like insulation, windows, doors and roofs. A tax credit is even better than a deduction, because they are dollar-for-dollar savings instead of simply saving you whatever tax you paid based on your income bracket. For instance, if you’re in the 28% tax bracket, then a $1,000 deduction lowers your tax bill only $280, while a credit lowers your tax bill by $1,000 regardless of your effective tax rate. There are limits on energy credits depending on what you purchased, but the dollar-for-dollar savings make them very valuable.
- Property taxes
State taxes levied on your primary residence is deductible, too, and can add up in a hurry depending on where you live. Deducting this big local tax bill can save you a lot on your federal return.
- Casualty losses
If you suffered property damage and weren’t reimbursed by an insurance company for repairs, you may be eligible for a big deduction. Whether it’s a flooding or a fallen tree or even vandalism, sometimes damage to your home can cost you thousands of dollars out-of-pocket. Your casualty loss deduction must exceed 10% of your adjusted gross income, so don’t bother writing off small-time repairs. But if you incur significant expenses repairing your home after an unfortunate event, document everything and tap into this tax break to ease some of the pain.
Always consult a qualified tax attorney or accountant with regards to your specific tax situation. For Real Estate advice, RE/MAX Park Square is your local professional. Our door is always open.