Even though it took a few years of careful research and some thoughtful house hunting (so grateful for our real estate agent!), we’re really happy with the home we’re in now. Being homeowners of a slightly older house has definitely come with some extra projects and elbow grease to update it, but we wouldn’t trade it. And believe it or not, the same thing is true with finances and taxes.
While there’s plenty of expenses that come along with owning a house, there are some tax benefits too. If you’re looking to get the most out of your home, here are five tax breaks for homeowners you want to stay on top and keep a record of.
Mortgage Interest Deduction
When you make your mortgage payments, you may have been surprised at how much of your money was going towards interest. The good news is that you may be able to deduct your home mortgage interest when you file your taxes.
When you receive your Form 1098 at tax-time, you’ll find out how much mortgage interest you paid in box 1. As for claiming a mortgage interest deduction on a second home, check to make sure it meets all of the qualifications.
Property Taxes
Property taxes can be a big chunk of your housing expenses, but you may be able to deduct them on your taxes.
If you have an “Impound/Escrow Account” your property taxes are included with your mortgage payment so the amount paid annually will be reflected on your Form 1098 Mortgage Interest statement. If they are not impounded keep record of what you paid to your county assessor. You can also look at your property tax bill for the year, which you may also be able to look at what you paid online.
Keep in mind that the new tax law changed how much property taxes can be deducted. Under the new tax law, the maximum amount of state and local property, income, and sales taxes that can be deducted is $10,000. In the past, these taxes have generally been fully tax deductible.
Points Paid for Your New Home
Bought (or refinanced) your house recently? You may remember having to pay points. Basically, those points (or loan origination fees) are you locking in a certain interest rate by paying some costs upfront. You may not have wanted to pay them, but those points can also be a tax deduction.
When you receive your Form 1098, you can find out how much you paid for points in box 6. You can also find your points paid on your settlement statement for your loan. If you just purchased your home you can deduct all of the points you paid in the same tax year. If you refinanced, the points you can deduct are divided up over the term of the loan.
For instance, if your points paid on a refinance were $3,000 and the loan was a 30-year loan you can deduct $100 per year ($3,000/30) for 30 years. Another tax benefit you may be excited to find is if you already refinanced your home loan in the past and refinanced again you can deduct all of the points left to deduct on the old home loan in the same year. Don’t worry about knowing how to calculate your deductions for points, TurboTax will accurately calculate the correct amount of points you can deduct based on your entries.
Private Mortgage Insurance Premiums
Private mortgage insurance is typically what you pay if you got a conventional home loan and put less than 20% down. It’s meant to protect the lender, but if you paid private mortgage insurance premiums, you can still get a win. You may be able to claim a deduction for Private Mortgage Insurance you paid when you file your taxes. You can find the amount paid on box 5 on your 1098 form.
Home Office Deduction
If you work from home (like myself), then you may be able to claim the home office deduction.
There is a simplified home office deduction approved by the IRS that you can use, up to $1,500 which is the set dollar amount of $5 per square foot of your home used for your business up to 300 square feet or you can claim the home office deduction based on a portion of your home expenses like mortgage, utilities, electricity, insurance, etc, based on the percentage of space used for your home office.
Just keep in mind that to claim this tax deduction, the IRS requires that this is dedicated space used exclusively for your business. It also has to be the principal place of your business. So while my husband works from home a few times a week, his office space does not qualify as it is not his primary place of work.
Keep Records and Run the Numbers
Having good records can be handy and help you get a bigger tax deduction especially if you’re able to itemize your tax deductions.
If tax deductions for your home and more are greater than the standard deduction ($12,000 single 2018, $24,000 married filing jointly 2018) then you will be able to itemize your tax deductions. TurboTax will figure out which gives you the bigger tax deduction (itemized or standard), based on your entries.
Don’t worry about knowing these tax rules. TurboTax asks you simple questions about you and gives you the tax deductions and credits you’re eligible for based on your answers. If you have questions, you can connect live via one-way video to a TurboTax Live CPA or Enrolled Agent with an average 15 years’ experience to get your tax questions answered. TurboTax Live CPAs and Enrolled Agents are available in English and Spanish and can also review, sign, and file your tax return.
Your Take on Home Ownership
I’d love to hear from you! How are you taking advantage of being a homeowner?