Tax Day is here, and if you bought a house last year then there are certain deductions you may be eligible for to help reduce your taxes. Below are some ways that you can help ease some of the burden of owning a home come tax time.
Mortgage Interest Deduction
As a general rule, you pay more interest during the earlier years of your loan. With that, taking advantage of this deduction could help quite a bit after your initial purchase. According to the IRS, you can deduct home mortgage interest on the first $750,000 ($375,000 if married filing separately) of indebtedness. This means the majority of buyers can deduct all of their interest paid during the year. The limitation here is that to be eligible for this deduction, the mortgage loan must be secured by the property as collateral and the proceeds of the loan must be used to build, buy or substantially improve your primary residence or second home. In short, that means this deduction is for homes that you live in, not investment properties.
Real Estate Taxes
Another deduction is the taxes you pay on your property. The limit for this deduction is limited to $10,000; or $5,000 if married filing separately. To be eligible for deduction, this must be taxes from your state or local government that are directly used for the general public's welfare. Any fees or taxes for projects that increase the value of your property, such as sidewalks, water mains, sewer lines, etc., are not eligible.
Points
Interest rate discount points are deductible on taxes. There are several questions that will need to be answered before deducting them, though. The questions are there to ensure that what is being deducted were truly points paid to reduce your interest rate and not other types of fees that are labeled as points to attempt to deduct them.
Private Mortgage Insurance
If you were required to take insurance on your mortgage, it is deductible but the amount is dependent on your adjusted gross income. The PMI deduction is lowered by 10% for every $1,000 a filer's earnings are over the AGI restriction of $100,000. The deduction goes away entirely for the majority of property owners whose AGI is $109,000 or for married couples filing taxes separately $54,500.
Home Office Deduction
One deduction that has become much more widely used over the last couple of years is the home office deduction. To be eligible for this deduction, you must be a small business owner, including self-employed people, who uses a part of their home as their primary place of business. This is not able to be used by remote employees who work for someone else. Like with any tax issue, all of these have their requirements and depending on your tax situation you may or may not be able to use some or all of these. For specifics on whether these deductions can or should be claimed on your taxes please reach out to your local tax expert.
