Buying a home is a big investment, but with that comes a variety of tax breaks. One of life’s certainties are taxes. Everyone pays them, but those who take the time to understand their write-offs will realize the benefits. While itemizing your taxes does require more work, the benefits for homeowners can more than make up for it. The tax deadline is coming up quickly, so let’s take a look at six tax breaks that should be on the minds of homeowners everywhere!
- Property Taxes—Like regular taxes, property taxes are inevitable. But understanding how your property taxes are calculated can be empowering, especially at tax time. If yours are based on the assessed value of your real property, you can deduct state and local property taxes. Keep accurate records if you pay out of pocket though. Those who pay through an escrow account will have an easier time, as the amount will appear on Form 1098 from your lender.
- Mortgage Interest Deduction—Writing a check for your home each month should make your mortgage go down quickly. But the majority of the money is put towards interest at the beginning of your loan. Fortunately, a Mortgage Interest Deduction (MID) exists, and you can deduct the amount from your taxes. The amount also appears on Form 1098.
- Construction Loan Interest—If you are considering a home remodel, look into getting help with expense through financing. A construction loan might entitle you to deduct the interest during the first two years of the loan.
- Mortgage Insurance Premiums—Most homeowners pay private mortgage insurance (PMI). It protects your lender in case you default, and it’s also tax-deductible if your AGI is less than $100,000 (married couples).
- Energy Star—Getting paid to shop sounds like a scam, but when you’re talking about Energy Star appliances, it’s not as far fetched as it sounds. Purchasing energy-efficient appliances, windows, doors, and skylights will give you another tax deduction. You will need to install them by the end of the year though to get the 10% tax credit. And it’s only based on the cost of the products, not installation.
- Points—You may not remember, so look back to see if you paid any fees when you obtained your mortgage. If you did, you’re entitled to a deduction of the fees during the year you paid them, assuming the loan was for a primary residence. And if you have refinanced, you can deduct the points over the life of the loan.