11 Tax Deductions for Homeowners
For most people, owning a home is like moving a step up the American-dream ladder. It is indeed wise of you to buy a home instead of continuing to pay hefty rent. Your home is an excellent investment in the long run because it helps you not only build up an equity but also garner substantial tax breaks.
“There are certain deductions that can be claimed by homeowners only,” says John Gregory EA, tax practitioner and founder of 1040Return.com. “If you have taken out a homeowner’s loan, consider these deductions as Uncle Sam’s gift to you. These tax breaks will surely alleviate the financial burden of many taxpayers, especially those who are paying their mortgage.”
Now let us take a look at the most significant tax breaks that only homeowners can claim:
- Qualified fuel cell property
- Qualified solar electric systems
- Qualified solar water heaters
- Qualified small wind energy property
- Qualified geothermal heat pumps.
The dollar limit on the amount of credit for fuel cell property is $500 per half-kilowatt of power capacity of the property. For example, the fuel cell has a capacity of 10kW. It will qualify for $10,000 in tax credit. Besides, the amounts of credit for solar, wind and geothermal equipment do not have any upper limit. The credit is available for equipment placed in service throughDec. 31, 2016.
- The taxpayers should certainly keep a track of the real estate taxes that they pay for their property. They should maintain good records by preserving the copy of the taxes paid.
- The bank which financed your property will send you the Form 1098. It is a statement showing the amount of interest that you paid on your mortgage. The 1098 has to be mailed by 31stJanuary of the following year.
- If you make improvements to your property, you cannot write off the cost of home improvement. However, when you wish to sell off your home, the cost is supposed to be added to the purchase price of your property. The aim is to diminish the gain when you sell your home.
- Don’t forget to retain the receipts every time you make an improvement to your property. It would be very easy to maintain and retrieve the receipts if you store them in a dedicated file folder.
- I don’t expect the introduction of any new tax breaks next year. However, the Home Energy Credit and the Premium Mortgage Insurance expires with the tax year 2014 unless the Congress extends those credits.
- However, I do think there is substantial pressure from the ‘Green Energy Companies’ to extend the energy credits applicable to geothermal heat pump properties, small wind properties, solar and combined heat and power properties, which is set to expire on 31st December 2016.
- If and when you sell off your property, do retain a copy of the settlement agreement of when you had bought the home. If you do not buy a new home and decide to keep the cash, any gain that you might have made from the sale would be subject to tax, unless it does not exceed $250,000 for an individual and $500,000 for a married couple filing jointly.
- The first-time home buyers would be glad to know that they can withdraw $10,000 from their IRA account to buy a home, without being charged any penalties.
“Buying a home can be a stressful ordeal,” says Gregory. “However, if you properly deal with the taxes and take advantage of the deductions available, it can relieve some of your stress and leave you to enjoy the experience hassle-free.”