Buying a home is a life-changing event. You are responsible for many things that you probably weren’t responsible for when you rented, such as B. Landscaping, removing snow from your driveway, or fixing a leaking roof. However, there is another aspect to home ownership that goes beyond a few chores. Your home also affects your taxes.
If you are a new homeowner, this is probably nothing new to you. However, if you are in the first home market, you should understand what you can and cannot deduct and any tax credits.
Below is information about those expenses, the first-time homebuyer tax credit, and other available tax credits that can help you save money this tax filing season.
Mortgage Points Deduction
If the money in points has changed hands, you can reduce your taxable income, whether it’s a new loan or a refinance.
Mortgage points are usually paid to the lender at closing to lower the interest rate. They are expressed as a percentage of the loan, usually 1%.
Since the mortgage interest is deductible, the points you pay are also deductible provided you gave money to the lender for them.
Mortgage Insurance Deductible
Possible deductible for your mortgage insurance (PMI) if you took out a loan in 2007 or later.
If you pay less than 20% upfront, you are most likely paying PMI. Good news: You can deduct PMI payments if you took out a loan in 2007 or later. However, once your Adjusted Gross Income (AGI) reaches a certain level — $50,000 for individual files and $100,000 for collective files — the deduction reduces until you’re eligible based on your income.
Mortgage Interest Deduction
Deduct the full amount of mortgage interest you pay up to $750,000 of joint filing debt and $375,000 of single filing debt.
As one of the most important tax incentives associated with homeownership, you can generally deduct all mortgage interest up to a certain amount of debt.
If you bought your home before December 15, 2017, you can deduct interest up to $750,000 if you file jointly and up to $375,000 if you file individually.
If you bought a home before this date, you may be eligible to claim a mortgage interest deduction of up to $500,000 as a sole proprietorship and $1 million as a joint venture.
Home office deduction
If you use part of your home exclusively for business purposes, you may be able to deduct some of your expenses from your taxes.
The home office is deductible if the room is used exclusively for business.
With the regular method, keep a good record of your expenses and account for other items such as depreciation.
Property Tax Deduction
Deduct up to $10,000 (cumulative) and $5,000 (one-off) in property taxes in the year indicated.
If you pay property taxes, you can deduct the total amount you pay each year up to $5,000 as a single taxpayer or $10,000 as a combined entity. This limit includes state and local taxes and sales taxes. As with the other deductions listed here, you cannot deduct property tax unless you disclose it.
Capital Gains Exemption
When it’s time to sell your home, in many cases homeowners don’t have to pay capital gains tax on the proceeds of the sale. Under current law, married couples who have owned and occupied their new home for at least two of the last five years do not have to pay taxes on the first $500,000 of the sale of their home. Individual applicants earn up to $250,000 tax-free.
Note that the Tax Code has made important changes that may affect individuals and small businesses. Always consult a qualified professional advisor with questions about filing your tax return.