You might be surprised to find out just how many deductions homeowners get to use come April 15th. The US government encourages the stability of home ownership by offering a set of tax perks that make the cost of owning a home much more affordable than it might initially appear.
Here are some of the deductions homeowners definitely shouldn’t overlook this tax season:
Mortgage interest – For the first few years of home ownership, the largest portion of your mortgage check goes towards paying the interest on your home loan. Thankfully, all that interest is tax deductible, reducing your taxable income by the same amount. Because the amount of interest paid per year can be in the tens of thousands of dollars, this is the most important tax deduction a homeowner can take.
Around the beginning of the year, you’ll receive form 1098, which will sum up all the interest you’ve paid over the past year. Keep in mind that the interest deduction also applies to interest paid on home equity loans and loans taken out for home improvements.
Property taxes – You also get to deduct the two property tax payments you made last year, which can also add up to a significant amount every year.
Points – If you purchased a home in the past year and paid for points in order to lower your interest rate, the amount you paid is also tax deductible.
Home office – If you use a part of your home for work, you can take a deduction. The easiest way to calculate the deduction is to determine the size of the area you use for work (in square feet) and multiply that number by $5, resulting in your deduction amount.
Capital gains – This tax break comes into play if you’ve sold a home in the past year. As long as you lived in the home for more than 2 years, you don’t have to pay taxes on any capital gains from the sale of the property, up to $250,000 ($500,000 if you’re married, filing jointly).
Every homeowner should be aware of these tax deductions and take full advantage of them every year. These deductions have been around for a long time, and when supported with documentation, are considered some of the safest tax deductions a person can take.
