It’s that time of year again- Tax Season. The good news is, if you are a homeowner, here are 5 tax deductions you should ask your CPA or tax attorney about. If you bought and/or sold a home in 2016, there are a few more deductions here you should mention to your tax preparer.
- Mortgage Interest: If you have a loan, your biggest tax break will likely be from the mortgage interest you pay each month. As long as your loan is under $1 Million, then you should be able to take advantage of this deduction. This also applies to equity loans and lines of credit that are less than $100,000.
- Points: If you bought down the rate on the loan to purchase your primary residence, you can deduct the cost of these points the year you paid for them. If you paid points on a refinance or home equity loan or line of credit, you can generally deduct the prorated amount over the life of the loan.
- Property Taxes: If you owned your home the entire year, you can deduct 100% of your property taxes paid that year. If you owned your home for only part of the year, you can deduct property taxes for the portion of the year that you owned the home.
- Home Improvements: If you made improvements to your home within 90 days of the selling it, these are considered selling costs, and may be eligible to be deducted. However, there is a distinction between normal maintenance and improvements needed to sell. Your tax professional can help you determine which projects can qualify for deductions.
- Moving Expenses: If you moved due to relocating for work, you may be able to deduct a portion of your moving expenses including storage unit costs, transportation and lodging.
What’s more, you may be able to deduct the interest on your boat or RV, as long as it has cooking, sleeping and bathroom facilities, and you use it at least 14 days each year as your second home.
If you purchased a second home or vacation residence, any points paid must be amortized over the life of the loan.
Check with your CPA to make sure your loan meets all of the qualifications to deduct these points.
While these are five of the most common deductions homeowners can take advantage of in order to minimize their obligation to Uncle Sam, there are a few things to consider before you jump right in. In order to take advantage of these deductions, you’ll no longer be able to take a standard deduction and file the EZ tax return. Instead, you’ll need to itemize your deductions, which result in a more complicated tax return.
Also, if you sold a home and made more than $250,000 profit as an individual, or $500,000 profit as a married couple, you will have some additional deductions not mentioned here, such as real estate agent commissions, legal fees and title insurance.
Keep in mind, each person’s tax situation is unique and can vary from year to year and state to state. Your tax professional will be your best resource to determine the best deductions for your tax situation.