Potential Tax Benefits For Home Owners
One of the benefits of owning a home over renting is the various tax breaks offered to home owners. But what exactly is deductible?
The most common tax deduction among homeowners is the interest paid on mortgages. "It's evolved over the last 10 years, but we now have a cap of $1.1 million in mortgage debt that we can deduct for tax purposes," said Monica Rebella, a certified public accountant in California, in a USA Today article. These full interest deductions are also attainable on second homes with a mortgage, so long as the total deduction among all the mortgages is less than $1.1 million.
The biggest concern to be cautious of is making sure any equity being taken out is directly used to improve the house or it isn’t deductible. "If you refinanced your loan and decided, 'Hey, why don't we take another $50,000 out in equity,' but then you don't use that money to, say, build a pool, that's not fully deductible," Rebella said in the article.
The second large tax deduction associated with owning a home is property taxes. The taxes paid during monthly loan payments go into an escrow account for payment once a year, according to Bank Rate. The escrow account balance should be given in an annual statement from the loan lender, along with other loan interest information. Both of these are deductible for the entire time period of home ownership.
But if this is the first tax year in owning a new house, the settlement sheet received during the closing process has additional tax payment data. When the property was transferred from the seller to the buyer, the year's tax payments were divided so that each party paid the taxes for that portion of the tax year during which each party owned the home, with that portion being entirely deductible, according to Bank Rate.
Local, state tax breaks for environmental improvements
One of the fairly overlooked tax breaks are any “green” improvements made to the home. If dual-paned windows, insulation, low-flow plumbing appliances, tankless water heaters or solar panels were installed in 2013, find the receipts and talk with a tax preparer, or visit state, county and city government websites to research eligible tax advantages, according to Forbes.
However, the deduction cap is $500, and it's not applicable if a similar claim was made before the credit was passed in 2011, according to USA Today. “A separate and more substantial credit is available for solar energy installations, so long as they are on the primary residence and not a rental property.”
Having a home office
For people who work from home, there are certain tax breaks that can be taken. Mainly these are any renovations to the room that serves as an office, telephone lines and the cost of heat and electricity. “Before claiming a home office on returns, though, be sure to speak with an accountant to understand the benefits and liabilities. There are caveats to claiming home office tax deductions, and the rules can be tricky,” according to The Mortgage Reports.
For more information on real estate in the Atlanta area, contact Pat @ www.AtlantaRealEstateBrokers.com