Call (202) 596-8101 | Email us!
facebook linked in twitter youtube
Connect with us

12 big tax deductions for homeowners

Big Deductions

Are you taking advantage of all the tax benefits that can make home-ownership more affordable and put a lot of extra cash in your pocket?  Make sure to consider these big deductions when you file—they really add up!

  • Mortgage interest: Your home loan is deductible up to $1 million for a principal residence plus a second home. (This was saved by Congress during the recent fiscal cliff debates and remains a key deduction for homeowners!) You’ll need to itemize your income taxes in order to claim this. Don’t just fill out the 1040-EZ without doing the math first to see whether itemizing or the standard deduction will result in the lowest tax bill—or highest refund—for you.
  • Property taxes: Property taxes on all real estate are fully deductible. If you bought a home in 2013, check the settlement sheet to see if you reimbursed the seller for property taxes he or she prepaid for a period you actually owned the home. If you paid them, include that amount in your property tax deduction.
  • Mortgage insurance premiums:  The deduction applies to private mortgage insurance premiums as well as FHA and Veterans Affairs premiums. (This tax break was taken away at the end of 2011 but returned for 2012, 2013 & 2014 federal taxes. The change will apply for homeowners making less than $110,000 a year.)
  • Credit for green improvements:  Not a tax break but a credit, this has been restored. It allows homeowners to take up to $500 off their federal income tax for making certain improvements that increase the energy efficiency of their homes, such as insulation, water heaters, furnace, boiler, heat pump, windows and doors, and roofing, among others. The Alliance to Save Energy and the Database for State Incentives for Renewables & Efficiency (view by all incentive programs by state) explain what is eligible.
  • Vacation home: You can deduct some of the costs associated with owning a vacation home, such as real estate taxes, personal propertytaxes, mortgage interest, and points. If you rent the place for 14 or fewer days during the year, the rental income is tax-free to you. If you rent it for more than 14 days a year, you must report the income but also may claim deductions for rental expenses. A boat or RV is considered an additional home as long as it has cooking, sleeping and bathroom facilities.
  • Investment property/rental property: The cost of maintaining and marketing a rental property can be deducted from the income the property generates, without regard to the owner’s tax status. These expenses include mortgage interest payments, insurance, utilities, maintenance, repairs, advertising costs and management fees, as well as the non-cash cost of depreciation. Rental repairs are usually fully deductible in the year the expense incurred. In order to qualify, the home can only be occupied for personal use for up to two weeks per year, in addition to stays required for maintenance, repairs or improvements. Capital gains on investment properties can be completely sheltered and deferred by purchasing another investment property using a 1031 Exchange.
  • Home office: You can deduct the costs of a home office that you use exclusively as your principal place of business. This may include a portion of your mortgage and HOA fees, office maintanance and repairs, and percentage of utilities and homeowner’s insurance.
  • Tax-free rental income: If you rent out your own home for 14 or fewer days during the year, the rental income is tax-free.

If you bought a home in 2013:

  • Points:  You can deduct any money paid toward points or origination fees at closing. Look for your HUD-1 settlement statement to see how much you paid. If you refinanced your mortgage, or took out a loan to buy a second home or investment property, deduct any points you paid equally over the life of the loan.
  • Roth IRA payouts for first-time homebuyers: The Roth IRA allows you to withdraw contributions at any time tax- and penalty-free if used to buy your first home.
  • Relocation costs: If you moved 50 miles or more for a new job, deduct moving expenses.

If you sold a home in 2013:

  • Capital gains tax exemption: If the profit from the sale of your house is under $500,000 for married couples or $250,000 for single owners, you are exempt from capital gains tax. This exclusion can be used once every 24 months and you must have lived in your home at least for two of the prior five years in the home before the sale.

Under the Tax Relief Act of 2012, the top rate for capital gains increased to 20 percent from the Bush-era maximum rate of 15 percent. The 20 percent rate will apply to the extent that the taxpayer’s income exceeds the thresholds set for the 39.6 percent rate. All other taxpayers with income below the 39.6 percent threshold will continue to have their capital gains and dividends taxed at 15 percent.

 

Consult a tax professional for details, and contact us with all your real estate questions!

Leave a Reply

Affiliated with RE/MAX Allegiance | (202) 547-5600
 

Copyright © 2017 ADMCRealtyGroup    Log in     Design by Real Estate Tomato     Powered by Tomato Real Estate Blogs