If you’re still debating the merits of buying versus renting or if you’ve recently bought a home but don’t know about all of the perks, you might be surprised to learn that homeowners get a lot of tax benefits. Don’t let the time limits on many pieces of tax credit legislation leave you flummoxed – there are plenty of ways to take advantage of homeowner tax benefits. These days, your options are more limited than they used to be, but you can still save substantially by making sure you get all of your deductions. Unfortunately, the home buyer tax credits of 2010 have expired (along with the home energy credits of 2009), but your deductible options haven’t – so make sure you’re getting all the benefits you deserve as a proud homeowner.
Mortgage Interest Tax Break
As long as you haven’t taken out a personal loan to pay your mortgage, you’ll be able to deduct the interest you pay on it. Why is this so wonderful? Because for most people, the majority of that mortgage payment is eaten up by interest – and this is a great way to find something positive about that scenario. It only applies if you’re paying for your first or second home (not third or more), but for most people, this means a nice tax break. Acceptable loans include mortgages, second mortgages, lines of credit, and home equity loans, but you can only deduct interest up to your home’s fair market value or $1 million. For most of us, that’s definitely going to be the “fair market value” – but just in case you’re the lucky owner of a mansion and $1 million loan, you’ll have to consider that if you’re filing taxes separately from your spouse, you’re each limited to $500,000 (or a total of $1 million).
Real Estate Deductions
Your annual property taxes are deductible, so if you don’t know how much you paid, check with your county tax collector. You should get a statement or receipt once a year showing how much you paid in property taxes. If you bought a home this year, check your settlement or closing statement to make sure you include any property taxes paid at that time. Just keep in mind that if you prepay any real estate taxes, they can’t be deducted until the year they’re required. For example, if you prepay some or all of 2012’s taxes in 2011, you can’t deduct them until 2012. When deducting, just look for line 6 on Schedule A (Form 1040) and fill out the necessary information.
Home Office Deductions
If you’re self-employed or work extensively from a home office, you can deduct a variety of expenses. You just need to make sure that the majority of your work time is spent in the home office, or at least ten hours a week (preferably more to avoid being audited). Your home office must also be its own room and can’t share utility – for example, a kids’ play room that doubles as your office at night wouldn’t be eligible for deductions. However, if you have a room in your house that’s dedicated only to being your office, you can benefit from tax deductions. Expenses that can be deducted include repairs, utilities, insurance, security, and depreciation in addition to your mortgage and real estate deductions. It’s helpful to include these on your business taxes because it reduces the amount you can pay yourself in salary. To calculate the percentage of utilities you can deduct, divide the square footage of your office space by the total square footage of your home. Any expenses that are directly related to your home office are completely deductible – for example, having someone fix your crashed work computer is a deductible expense. You can also deduct purchases like equipment, tools, desks and other office furniture, and even advertising fees. If you’re in doubt about any specific expenses, ask a tax professional to confirm whether or not the deductible will be acceptable.
Enjoy the benefits of being a homeowner and take advantage of your tax breaks. It might mean a little extra work for you or your tax professional, but it’s worth it in the end. You’ll feel accomplished and you’ll even save some money – what could be better during tax season?
Bio: Maria Rainier is a freelance writer and blog junkie. She is currently a resident blogger at First in Education performing research surrounding online universities and their various program offerings. In her spare time, she enjoys square-foot gardening, swimming, and avoiding her laptop.
