Tax season is upon us again! As the deadline to file your taxes approaches, it’s important to understand the various tax deductions available to you as a homeowner.
Before filing, consider the following tax-saving deductions.
1. Loan Origination Fees Deduction
Did you pay points, also known as loan origination fees to your borrower to obtain a home mortgage? If so, you might be eligible for a one-percent deduction on your home’s principal loan amount. According to the IRS guidelines, a borrower can deduct the full amount of points paid if they secured a loan for their primary residence and did not use the loan to pay any other closing costs such as appraisal fees, inspections fees, etc., among other guidelines. To see whether your points are fully deductible, consider reviewing the IRS’ Publication 530 Figure A section.
2. Mortgage Interest Tax Break
If you are itemizing your deductions this year, get the most out of your property-owning status by applying the mortgage interest tax break. Homeowners who itemize their deductions can deduct interest paid on their mortgage or home improvement project for up to $1 million. Your mortgage holder should provide Form 1098, listing the mortgage interest you paid during the previous year. If you did not receive the form, you could enter the deductible interest on line 11 on Schedule A. According to the IRS’ Publication 503, your mortgage interest report for 2015 should be provided to you by February 1, 2016, however, if the document is sent via mail, please provide adequate time to receive it before contacting your mortgage holder.
3. Home Improvements Loan Deduction
If you took out a home equity loan to make home improvements such as upgrades/repairs or added square footage to your primary home, your home equity loan’s interest might qualify as a tax deductible for up to $100,000. It’s important to note that regular home maintenance repairs such as repainting your home, fixing your floors, or replacing broken window panes among other repairs do not qualify as tax-deductible. Nevertheless, the IRS states that if repairs are part of an extensive remodeling project they can be considered improvements that add value to your home. Consider using the IRS’ 503 Publication Table 4 Record of Home Improvements’ table to maintain a record of your home improvements for the year.
4. Energy Tax Credit
Another major homeowner tax deduction is the cost of building materials used for energy efficiency upgrades for your primary home. According to the IRS, approximately 10 percent of your energy-efficient materials’ bill can be used as a tax credit—with a $500 maximum lifetime credit. Note, credit limitations apply depending on the item— i.e. you can only use $200 of this credit for windows. Consider reviewing Form 5695 to see if you qualify for an energy efficient property tax credits.
Disclaimer: The information provided in this blog are recommendations for current tax deductions. If you are seeking professional tax advice, please contact a tax preparer of your choice.