2016 Tax Advice and Tips for Homeowners Looking to Save Big
Keep More of Your Money When Uncle Sam Comes to Collect
Nobody enjoys paying taxes, but they’re a necessary evil. Without them, we’d quickly find ourselves without schools, highways, or social safety nets. Still, nobody wants to pay more than their fair share, and as a homeowner, you have several ways to reduce your tax obligation.
You see, homeownership is good for the economy, so the U.S. government rewards those who purchase homes with lucrative income tax deductions. Let’s take a look at some of the best sources of tax savings for homeowners.
Mortgage Interest Is Deductible
As you’re already aware, a substantial portion of your monthly mortgage payment goes to pay for interest on your home loan. In fact, if you’ve just recently purchased a home, you may be surprised to find that a majority of each installment goes toward interest. While it can be frustrating to see your principal fall so slowly, the good news is that mortgage interest is fully tax deductible.
This is true for your second home as well, even if it happens to be an RV or houseboat, as long as you live in it for at least 14 days per year.
Don’t Pay Taxes on Your Taxes
Property taxes make up a significant portion of your monthly mortgage installment, too. But there’s no need to pay income tax on money you’ve already spent on your property taxes. Check your lender’s yearly statement for the full total, and deduct your interest as an itemized expense.
Energy Efficiency and Renewable Energy Tax Credits
Have you made improvements to your home to make it more energy efficient? Well, in addition to lower utility bills, you’ll also enjoy a tax credit. The credit is good for 10% of the cost up to $500 for biomass stoves, new windows, doors and skylights, insulation, roofing, and energy efficient appliances including central air conditioners or propane furnaces.
And if you’ve gone the extra mile and equipped your principal home with solar panels, geothermal heat pumps, or a residential wind turbine, you can deduct 30% of the total equipment and installation cost from your tax liability.
Deduct Your Points
If you’re like many homeowners, you may have paid points to lower your mortgage rate. As you may have guessed, these points can be deducted too, as long as certain criteria are met.
The points in question must be associated with the purchase of a primary residence, so vacation homes don’t count. Also, the payment of points must be standard practice in your area, and the number of points you purchased must be in line with normal lending practices.
You can also deduct points for refinanced mortgages, and under certain conditions, home equity loans and lines of credit, as well. However, the points must be deducted in installments over the course of the mortgage.
Selling? Pocket More of Your Profits
Let’s say you somehow managed to get a mortgage during 2012 and purchased a home when values were at their lowest. At this point, you’ve probably amassed a respectable amount of equity, especially if you’re living in a particularly desirable real estate market.
If you’re considering selling your home, then you’ll be pleased to know that you can net up to $250,000 in sales gain without paying any tax on it, and that number jumps to $500,000 if you’re filing jointly with your spouse.
Don’t Pay More Than Your Share
Taxes are a part of life, but there’s no need to leave money on the table. We’re sure you have things you’d rather spend your hard-earned cash on, so this tax season, be sure to maximize the tax deductions that homeownership offers.