Tax Filing Season Ends April 18, 2024
Congratulations, Homeowners! All the time, effort, and money you invest into your home is worth something extra when it comes to filing your income taxes with the Internal Revenue Service (IRS) this tax season. This year, the deadline to file your tax return is April 18, 2022.
We’ll look at the 7 potential* top tax benefits of home ownership below:
Mortgage Interest Deduction. The mortgage you use on your primary residence or second home is the focus on this valuable deduction. Excluding home equity funds used for non-housing purchases (like a vacation or buying a new car), a homeowner can reduce their taxes by the amount of interest paid on a mortgage meant buy, improve, or build a new home.
Mortgage Insurance Deduction. Similarly, a homeowner can deduct from their taxes the amount of money spent on mortgage insurance premiums paid in their monthly mortgage payment. Sometimes known as PMI, this is the insurance used to protect a lender from default. This is not the same thing as a homeowner’s insurance policy to protect against loss associated with hazards like fire or vandalism.
Mortgage Points. Points are equal to 1% of mortgage interest. Paying points up front at time of closing can greatly reduce the cost of a loan over time. Whether the tax deduction is taken all at once during the tax year of the purchase, or whether it is distributed over time, is a matter to take up with a tax professional qualified to steer you through the process of determining eligibility.
State and Local Taxes (SALT). Homeowners in most states may be able to deduct the amount of their property taxes paid from their federal tax return. This excludes California, Connecticut, Illinois, Massachusetts, New Jersey, and New York.
Capital Gains. If you sell your home after having lived in it for at least two of the last 5 years, it is possible to reap the benefits of profiting from the sale without paying taxes on that income. In other words, if you paid $100,000 for your home five years ago, lived in it since then, and then sold it for $125,000, that profit of $25,000 is tax-free if you qualify.
Energy Efficiency Updates. Over ¼ of the money you invest into making your home more eco-friendly can earn you a hefty tax deduction. A range of 22%-30% of the amount invested into energy upgrades like solar panels can be deducted if certain standards are met.
Home Office Deductions. If a portion of your home is dedicated to working remotely or operating a business from home, that square footage can be calculated to deduct from your income taxes as a percentage of your mortgage, rent, and utilities costs. Still others use a simplified deduction of $5 per square foot in lieu of manually dollarizing the deduction using the square footage method.
*Not all homeowners will qualify for all tax deductions and programs. Please consult a qualified tax professional for your specific situation. This article is not intended to provide tax advice.
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