26 Mar Tax Breaks Every Homeowner Should Know
With a variety of tax breaks that come with home ownership, buying makes a lot of sense versus renting and paying someone else’s mortgage. Plus, think of all the money they’re getting back from Uncle Sam each year!
Taxes are one of those annual chores that generally bring people to tears, but for homeowners who know what they’re entitled to, tax time should bring smiles and hopefully fistfuls of cash. It’s going to require a little more effort to itemize, but any perceived hassles will be well worth it in the long run.
Here are six tax breaks that every homeowner should know about as we crawl closer to the tax filing deadline:
1. Mortgage Interest Deduction—When you pay your mortgage each month, the majority of that money goes towards interest at the beginning of your loan. A Mortgage Interest Deduction (MID) allows you to deduct this amount from your taxes. Look for Form 1098 from your lender and keep it. It’s your proof of what you’re allowed to deduct to the IRS.
2. Energy Star—Energy Star appliances will give you yet another tax deduction. They’re good for the environment and also for your bank account! Only certain items qualify, like energy-efficient windows, doors and skylights. And you’ll need to install them by the end of the year to get a 10% tax credit of the product costs.
3. Mortgage Insurance Premiums—Do you pay private mortgage insurance (PMI)? You do if your mortgage has a loan-to-value ratio that is higher than 80%. This insurance protects your lender against default, and is also tax deductible if your AGI is less than $100,000 (married couples).
4. Construction Loan Interest—Remodeling your home is expensive, and if you don’t have the money saved, consider getting a construction loan. You may be able to deduct the interest during the first two years of the loan.
5. Points—It’s time to look back at your loan to see if you paid any fees to get your mortgage. If so, you’re entitled to a deduction of the fees during the year you paid them. This only works if your loan was for a primary residence though. There’s even better news for those who have refinanced; you can deduct the points over the life of the loan.
6. Property Taxes—It’s important to know how your property taxes are calculated. If yours are based on the assessed value of your real property, you’re in luck! You will be able to deduct state and local property taxes, but if you pay out of pocket versus through an escrow account, you will need to keep track of your bills. Those who pay with an escrow account will be able to find the amount on Form 1098.