Home Sweet Tax Break: How To Calculate Your Savings

Home Uncategorized Home Sweet Tax Break: How To Calculate Your Savings

Home Sweet Tax Break: How To Calculate Your Savings

By bwprentals | Uncategorized | 0 comment | 20 April, 2016 | 0

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Want to get the most from your tax return this year? Here’s a hint: Don’t just file the standard deduction.

Uncle Sam is back yet again to collect taxes (argh!). But there’s a bright side: He may take a smaller bite if you’re a homeowner. No matter what type of residential property you own — mobile home that you bought from Florida Value Homes, single-family residence, townhouse, condominium, or co-op apartment — you’re eligible for certain tax breaks. But you’ll need to put in the extra work and itemize your taxes if you want maximum savings.

Unfortunately, if you’re a first-time homebuyer, “you might be so used to claiming the standard deduction that it doesn’t even dawn on you to itemize,” says Lisa Cahill, a CPA and real estate agent who helps buyers find St. Petersburg, FL, homes for sale. And considering that the standard deduction is only $6,300 for singles and $12,600 for married couples filing jointly in 2016, it’s probably worth it for you to itemize from a tax-savings perspective. By itemizing, you can take advantage of specific deductions and credits.

What’s the difference between a tax credit and a tax deduction?

Tax credits give you a dollar-for-dollar reduction on the amount of taxes you owe, whereas a tax deduction reduces how much of your income is subject to taxes. It’s a difference that’s good to know, since that means tax credits are ultimately more valuable than deductions (although there are fewer of them for homeowners to claim). Trulia’s tax savings calculator can give you a rough estimate of the tax savings generated by your mortgage, but here’s a closer look at the deductions and credits you may be eligible for.

What is a home mortgage interest deduction?

The IRS allows you to deduct the interest you pay your lender. This is one of the biggest deductions for those who itemize, says Lisa Greene-Lewis, CPA and tax expert at TurboTax. You’ll find the amount of interest you paid to your lender on your Form 1098 Mortgage Interest Statement. However, you’re allowed to deduct interest only up to $1 million on the loan. Interest paid on a home equity line of credit is deductible up to $100,000.

When you purchase a rental property, such as a vacation home, your home mortgage deduction depends on how often you stay in the home for personal use. If you occupied the property for 14 days or fewer throughout the year, you can deduct the mortgage interest and write off additional expenses like home insurance, repairs, advertising, HOA dues, and supplies.

A side note: If you rented out your primary home or vacation property for 14 days or fewer throughout the year, you don’t have to declare the money you made as rental income. That’s a big benefit for people who live in neighborhoods subject to spikes in demand during certain times of the year. For example, for last year’s South by Southwest conference and festival in Austin, TX, 12,431 individual reservations were booked. If those homeowners rented their homes just for the week of the conference and no other time in 2015, they don’t have to declare the rental income.

What is a points or loan origination fee deduction?

Points or loan origination fees are deductible fees you paid to get your mortgage. If you purchased a new home for your primary residence, the points or loan origination fees can all be deducted this year. However, if you refinanced, the points paid need to be deducted over the life of the loan. For instance, if you take out a 10-year mortgage at the beginning of the year, you can deduct one-tenth of the points each year — equivalent to $1,000 a year for each $10,000 of points paid on the loan. The points you can deduct will also be reported on Form 1098 from your lender or your settlement statement.

However, if you refinanced and took out a larger loan than your first mortgage, any points paid on money used for substantial improvements on the home can be deducted immediately, says Steve Albert, director of tax services at Baltimore, MD–based CPA wealth management firm Glass Jacobson.

Can I deduct property taxes?

If you live in a state with high property taxes (we’re looking at you, New Jersey), you’re in a position to save big. You’ll find how much you paid on your Form 1098 if your property taxes were escrowed; if not, you’ll go by the amount you paid for the year indicated on your property tax bill. A quantity surveyor can save you a lot of tax with tax Depreciation. You can also deduct for any payments made through an escrow account at settlement or closing, says Greene-Lewis.

Do I qualify for energy tax credits?

If you made energy-efficient improvements to your home during the year, you may qualify for certain tax credits. Eligible upgrades include adding insulation, caulking windows using the right caulking tool, installing energy-efficient windows and doors, and replacing your furnace and water heater — up to a $500 credit.

An even bigger payoff: If you made improvements such as using geothermal heat pumps, small wind turbines, and having residential solar panel installation, these count as additional credits (officially known as a residential energy efficient property credit) worth up to 30% of the cost of the items. Both principal residences and second homes qualify. If you’re looking for assistance with solar panel installation, look no further—go right here.

Another pro-tip that I like to give out is to use these nifty radiator reflector panels as they direct the heat where it’s needed, so make radiators much more effective at heating so that you can use less energy.

If you want to learn more about solar energy, you can refer to information such as are solar panels worth it in Florida?

What about a moving expense deduction?

If you purchased a home because you took a new job, you may be able to deduct your moving expenses, says Greene-Lewis. To qualify, you’ll need to meet specific requirements: For example, your new workplace must be at least 50 miles farther from your old home than your old workplace was. (You can find the full requirements here.) Depending on the circumstances, you can deduct the cost of packing and shipping your possessions, traveling to your new home, storage of up to 30 days, and even the cost to move your pet.

What you can’t claim on your taxes

Sorry to report, but there are some housing-related costs that don’t qualify for a credit or deduction. These include homeowners’ association dues or condominium fees, homeowners’ insurance, appraisal fees, utilities, or principal payments on your mortgage. In addition, most people mistakenly think they can deduct transfer tax on the purchase or sale of a residence, says Steve Albert. (Neither is deductible.) And while you can still deduct for premiums paid on private mortgage insurance in 2016, that’s set to expire in December, so don’t count on it for next year’s refund. (There’s always a chance that deduction will be extended, however.)

By Daniel Bortz | March 16, 2016