There are important deductions you can claim if you own or purchased a home in the past year
By Erik J. Martin
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Owning a home has its privileges. One of the most rewarding advantages is being able to claim valuable deductions and credits on your federal tax return come April 15. Whether you own or are preparing to purchase a residence this year, these write-offs can quickly add up.
“If you own your own home, you’re potentially eligible for a host of exclusive tax benefits that can save you thousands,” says Ryan Saltz, a tax professional with Tax Defense Network, Jacksonville, Florida. Among the most important deductions:
Mortgage and home loan interest
You can write off the interest on a mortgage of up to $1 million used to purchase a home as well as the interest on a home equity loan of up to $100,000. “This reduces taxable income dollar for dollar, unless you are subject to the phaseout of itemized deductions, which currently begins at $309,900 of adjusted gross income for married couples filing jointly,” says Laurie Samay, certified financial planner with Palisades Hudson Financial Group, Scarsdale, New York.
Real estate taxes
If you itemize your deductions on Schedule A of your tax return, you are also eligible to deduct real estate taxes paid on your primary and secondary residences.
State and local taxes
If you itemize deductions, you can choose to deduct either state and local income taxes or state and local sales taxes paid in that tax year. “You should choose whichever results in the largest deduction,” Samay says.
Discount points paid at closing
You may have paid points at a closing for a home purchase. Each point equates to one percent of the size of your mortgage loan.
“Points can be deductible as interest as long as the cash you paid for the down payment during the closing equals the point total,” David Hryck, a tax lawyer and partner with Reed Smith, Pittsburgh, says. “For example, if you paid 4 points, or $4,000, on a $100,000 mortgage loan, you can deduct the points as long as you put down at least $4,000 of your own cash when completing the deal.”
Mortgage interest credit
Available to lower-income buyers who received a qualified Mortgage Credit Certificate (MCC). “This can provide first-time buyers a tax credit on mortgage interest up to $2,000,” says Dan Bergman, a Chicago real estate agent with Redfin, who notes that this credit also decreases your tax liability dollar for dollar.
Home office
If you work from home, you can take a deduction for the room or space used as your office. Track costs diligently.
Tax-free IRA withdrawals
First-time buyers can withdraw up to $10,000 from their Individual Retirement Accounts penalty-free to purchase a home.
Expiring in 2016:
- Residential Energy Efficient Property Credit (30 percent for certain energy-efficient home systems)
- Non-business Energy Property Tax Credit (up to a 10 percent credit to a maximum of $500) for energy-efficient doors, windows, insulation and HVAC equipment.
- The Mortgage Forgiveness Debt Relief Act for homeowners who sell in 2016 in a short sale.
- The deduction for private mortgage insurance, affecting anyone who buys a house with less than 20 percent down.
To maximize your tax deductions, consult a tax planner or professional accountant. For more detailed information from the IRS on what you can and cannot deduct as a homeowner, view the list at this URL: tinyurl.com/irs16ejm.
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