Are you a homeowner looking to save money on your taxes? There are certain housing expenses that can be deducted from your taxable income. These include mortgage interest, insurance, utilities, repairs, maintenance, depreciation, and rent. However, there are specific requirements that must be met in order to claim these deductions. In this article, we'll discuss what housing expenses are tax deductions and how to make the most of them. If you have a mortgage on your home, you can take advantage of the mortgage interest deduction.
This itemized deduction allows you to reduce your taxable income by deducting the interest you pay on your mortgage. Depending on where you live, the property tax deduction can also be very valuable. To learn more about the relationship between taxes and homeownership, read up on how property taxes and insurance can affect mortgage payments. Property taxes are collected by the local government where the property is located in order to provide local services. It's important to understand how to calculate property tax and how it is paid.
If you use part of your home for business purposes, you may be able to deduct the expenses associated with its commercial use. The home office deduction is available to both landlords and renters and applies to all types of housing. While homeowners tax deductions can add up to thousands of dollars, claiming them is only worthwhile if all your itemized deductions exceed the standard IRS deduction. To decide if you want to itemize, add up the homeowners tax deductions and other tax deductions you qualify for. If the sum is greater than the standard deduction, go ahead and itemize.
If not, take the standard deduction. These are some of the tax deductions for homeowners that should be included in your calculation:
- Mortgage interest
- Property taxes
- Home office expenses
- Mortgage insurance
- Discount points
A discount point costs 1% of the mortgage amount. Forward points can be confusing because some lenders call their rates loan origination points; however, these points are used to pay the lenders costs of granting the loan and are not tax-deductible. You can deduct home office expenses if you are self-employed and use part of your home regularly and exclusively for business purposes. The IRS website provides details on how to determine if your home office qualifies for a tax deduction and has worksheets for calculating the amount of the deduction for home office expenses. The cost of mortgage insurance is currently deductible. This includes private mortgage insurance for conventional loans, mortgage insurance for FHA loans, guarantee fees for USDA mortgages, and VA financing fees for VA mortgages.
The amount paid for mortgage insurance is treated as mortgage interest according to the IRS. If you use the actual expense method, you can deduct direct expenses such as painting or repairs only in full at once. Indirect expenses such as mortgage interest, insurance, household utilities, real estate taxes, and general home repairs are deductible based on the percentage of your home used for business. For example, if you have in-person meetings with patients, clients or customers at home in the normal course of your business (even if you also conduct business elsewhere), you can deduct your expenses from the part of your home that is used exclusively and regularly for business. If the use of the home office is merely appropriate and useful, then you cannot deduct any expenses associated with its commercial use. Small business owners and entrepreneurs who work from home could save a lot of money on their taxes by taking advantage of this deduction as long as they meet IRS requirements and keep good records. If you deducted sales taxes on the building or purchase price of your home as an itemized deduction in Schedule A, then these sales taxes cannot be included as part of your home cost base. Your home office occupies 300 square feet in a 2,000-square-foot home; therefore, you may be eligible to deduct indirect expenses on 15% of your home. Owning a home can give you significant tax deductions each year including points paid when buying it as well as potential deductions for mortgage interest.
However, any depreciation taken on home office deductions is subject to capital gains tax when selling your home. For a complete explanation of tax deductions for your home office see Publication 587: Business Use of Your Home.
