If you own a home do you know all the tax deductions and tax breaks that you might be entitled to? When you own your own home there are numerous tax breaks that you will want to be aware of so that you can reduce your end of the year tax bill. Here is a detailed look at the tax breaks you might qualify for.
When you own a home and pay a mortgage on it, the mortgage interest you pay during the year is one deduction you won’t want to miss. In order to claim the deduction you will need to itemize your tax return and fill out an IRS Schedule A Form. To find the amount you paid in mortgage interest you should receive a statement from your lender with a 1098 form to file with your tax return. Many mortgage companies will mail your form with your monthly statement.
Other Mortgage Related Expenses
- Points: If you purchased your home this year and had to pay points in order to secure a home mortgage, the amount you paid for the points is tax deductible. If you refinanced a home this year and paid for points, the amount paid is still deductible but you will have to take the deduction over the life of your loan. So if you took out a typical 30 year mortgage, you can deduct a percentage each year until the loan is paid off.
- Mortgage Insurance Premiums: If your home mortgage requires you to pay PMI you can usually deduct the cost of the premiums on your tax return. There are income requirements to qualify for this deduction.
- Prepayment Penalties: If you paid off your mortgage this year and were charged a prepayment penalty because you paid it off early, you may be able to deduct the total amount paid as interest paid on your loan.
Home Improvement Deductions
If you take out a home equity loan or a line of credit against your home, the interest paid on these loans may also be tax-deductible or a portion may be tax deductible.
Real Estate Taxes
If your state or local government charges a real estate tax on your property based on your home’s value, the amount you pay is tax-deductible. It is important to note that you cannot deduct money you have paid into a mortgage escrow account until the tax bill has actually been paid.
Home Office Expenses
If you own your own business and work from home you may be able to deduct part of your home costs as long as you have a dedicated room or rooms in your home that are exclusively used for business purposes. Deductible costs might include insurance premiums, a portion of the utilities, home repairs and more.
What Expenses Can’t I Deduct?
There are of course numerous home owner expenses that are not eligible for a tax deduction. Here is a list of some of the more common expenses that you will not be able to deduct (some of these may be deductible if you have an area in the home that is designated as a legitimate home office):
- Any principal you paid towards your mortgage this year including any funds you applied towards paying extra principal on your loan.
- Money spent for home improvements or repairs.
- Money paid for homeowners or other types of insurance premiums like hurricane insurance, flood insurance, etc.
- Money paid for any household utility bills including gas, electric, cable, etc.
- Money paid to a homeowners association.