For most people, owning a home is like moving a step up the American-dream ladder. It is indeed wise of you to buy a home instead of continuing to pay hefty rent. Your home is an excellent investment in the long run because it helps you not only build up an equity but also garner substantial tax breaks.

There are certain deductions that can be claimed by homeowners only. If you have taken out a homeowner’s loan, consider these deductions as Uncle Sam’s gift to you. These tax breaks will surely alleviate the financial burden of many taxpayers, especially those who are paying their mortgage.

As April 15 approaches, let us take a look at the most significant tax breaks that only homeowners can claim:

• Interest on Home Improvement Loan. Interest on a home improvement loan is fully deductible if the improvement is made in the main home and it enhances its sale value.
• Property Tax. The taxes paid to acquire the property are fully deductible from the taxable income and the same is reflected in the Form 1040. Transfer tax arising from the transfer of the property to the new owner is a very common item.
• Redeemable Ground Rents. The redeemable grounds rents can be deducted if you have been paying monthly or annual rentals.
• Interest Accrued on a Reverse Mortgage. The reverse mortgages considered as a loan advance and not an income. Hence, the amount you receive is not taxable. Any interest, including the original issue discount, accrued on a reverse mortgage is not deductible until the loan is paid off.
• Premium Mortgage Insurance. You may be eligible to claim the deduction for the Premium Mortgage Insurance (PMI) on your tax return. However, this deduction is set to expire with the tax year 2014.
• Records of your Home Expenses and Improvements
  • The taxpayers should certainly keep a track of the real estate taxes that they pay for their property. They should maintain good records by preserving the copy of the taxes paid.
  • The bank which financed your property will send you the Form 1098. It is a statement showing the amount of interest that you paid on your mortgage.
  •  If you make improvements to your property, you cannot write off the cost of home improvement. However, when you wish to sell off your home, the cost is supposed to be added to the purchase price of your property. The aim is to diminish the gain when you sell your home.
  • Don’t forget to retain the receipts every time you make an improvement to your property. It would be very easy to maintain and retrieve the receipts if you store them in a dedicated file folder.

 

10 More Tax Tips to Discuss With Your Accountant

1. Mortgage Interest

• Mortgage interest is deductible if itemized- depending on mortgage agreement, could be more substantial than standard deduction.
• Can only begin writing off expenses after you reach 2% of adjusted gross income.

2. Debt cancellation

• Short sale- any cancellation of debt is still income.
• Foreclosures- if personally responsible for entire mortgage, you’re still responsible for cancellation of debt.

3. Selling your home

• Advertised selling home- can write it off.
• Bought title insurance- can write it off.
• Can claim repairs if they were performed during a certain time period around sale.
• If under $250,000 ($500,000 for married couples) made in profit from sale- not taxable.
• Must live in house for at least 2 years to qualify.

4. Moving Expenses

• Can only deduct if it’s for a new job and must meet specific requirements. (new job must be certain distance from old and new house, must work full-time for at least 39 weeks during the year after moving).
• If requirements were met, you can deduct cost of traveling to new location, cost of storage unit (up to 30 days), and cost of lodging along the way.
• Applies to all members of household, not just new employee.
• Can deduct cost of moving family pets.

5. Purchasing a second home

• All tax benefits of first home can apply to second (only if you’re not renting out the property).
• Renting out for a few days a year- can keep rental income tax free (if rented out for more than 14 days a year).
• If more than 14 days, must report income.
• If still using the property while being rented out, can write off deductions based on percent of personal use.

6. Home office

• Must use home office space exclusively and recurrently for business.
• If conditions are not met, can multiply the square footage of business space (up to 300 ft) by $5 for a more simplified method of deduction.

7. Home-improvement loan interest

• The interest is fully deductible, up to $100,000 in debt.
• Interest paid on HELOC is tax-deductible
• Any portion of home loan over 100% loan-to-value isn’t deductible.

8. Energy-efficient residents

• If made house more energy efficient (installing energy-efficient windows, asphalt/metal roofs, insulation, air conditioning and heating systems), you can receive a tax credit of up to $500.

9. Renewable-energy

• If equipment that uses renewable-energy was installed to power your home, may be eligible for Renewable Energy Efficiency Property Credit.
• Eligible for credit up to 30% of cost of equipment and installation (if installed prior to Dec 2016).

10. Medical Improvements

• If made improvements to house to meet medical needs (including installing ramp, or a lift) you can deduct the expenses- only the amount that the cost of improvements exceed the increase in the house’s value.
• Cannot deduct the entire cost of equipment.