Are There Hidden Deductions in Your Home?
4 Tax Deductions You May Qualify for as a Homeowner
“I love tax season!” Said nobody ever. More often than not, tax time is a time of year that few people ever look forward to. Whether you pay an accountant to do your taxes, you go to a commercial tax firm, or you do them yourself, filing taxes can be a time-consuming and thoroughly unenjoyable affair.
But, if you’re a new homeowner this year, then you might be able to find at least a little bit of extra relief. There are several tax deductions that you may qualify for, thanks to your home. Even if you don’t qualify for them all, something is better than nothing. Here are four hidden tax deductions that you may qualify for, and what you can do to take advantage.
1. Mortgage Interest and Points Deductions
It’s common knowledge that homeowners are eligible to deduct the interest paid on their mortgages over the course of the year on their federal tax returns. But what isn’t as commonly known is that if you paid points when you purchased your home, then that money is also tax-deductible because points are essentially prepaid interest. Qualifying mortgage amounts are capped at $750,000, however.
2. Property Tax Deduction
Property taxes can be deducted from state taxes, but not federal because they are considered to be a local tax. This can be especially helpful if you live in an area with high property taxes. In 2018, state tax deductions are capped at $10,000, so depending on your property tax and your state income tax, you may or may not be able to fit all your expenses within this limit.
3. Home Office Deduction
If you work from home, or you use part of your home for business, then you can deduct part of your home’s expenses on your federal tax returns. Eligible expenses include:
- Mortgage or rent payments
- Property taxes
- Cost of utilities
- Repairs and maintenance
- Similar expenses
How much you can deduct depends on how much of your home is used for business purposes. So, if your home office takes up 8% of your home’s square footage, then you can deduct 8% of the annual total for each of those costs.
4. Medical Home Improvement Deduction
If you needed to make home improvements to your home this year due to medical reasons, then you can deduct the costs. And it isn’t restricted to major home renovations, either. For instance, if you had to have your light switches and doorknobs lowered to accommodate someone in a wheelchair, then you can deduct the cost of that work from your taxes.
The only rule with the medical home improvement deduction is that you can only deduct the full amount if the improvements do not increase your home’s value. If the improvement does increase your home’s value, then you can only claim the difference between your expense and the amount of your value increase.
An example of this would be if you have a home that’s worth $210,000 and you spent $70,000 to have a handicap elevator installed and the improvement raised your home’s value to $250,000. In this case, you would only be eligible to deduct $30,000 instead of the full $70,000.