Your home might be the most expensive purchase that you will ever make in your lifetime. And regularly, you are reminded of your huge mortgage payments, insurance, property taxes, monthly bills, along with other strings of expenses that come with buying your home.
But at tax management season, uncle Sam helps homeowners score a massive break series of property taxes. In some cases, different perks from uncle Sam can significantly reduce the taxes you owe or add a boost to your bank account.
These tax break perks apply to all types of homes and not just conventional single-family houses.
Whether the roof over your head is a mobile home, townhouse, cooperative apartment, condominium, or another dwelling, you may call home and have a mortgage. These tax management perks from uncle Sam are up for grabs.
It turns out owning a home isn’t just about evading rent increases or calling shots on home decoration. If you do your research well on property taxes, you are eligible for it. You can put more money back in your pocket.
Here are the tax benefits of buying, owning, and selling a home.
Mortgage interest deduction
One of the most valuable tax tips for homeowners is a tax deduction on mortgage interest. You can deduct the interest you pay on mortgage debt of up to $750000 or $375000 for a couple filing separately.
If your mortgage is below $250000, you don’t have to worry about this rule. However, if your mortgage is above $1 million, you cannot deduct the interest.
Here are some boxes you will have to check to deduct your mortgage interest:
- It would help if you secured your mortgage with a home
- You must agree to use proceedings to build or improve your primary residence or second home.
Generally, these rules mean you cannot claim a mortgage interest deduction on an investment property. Also, you cannot claim if you are borrowing against your home equity to pay for something else.
Real estate taxes
You can also deduct federal government or local property taxes on the year you pay them. But this deduction is limited to $10000 every year or $5000 for a couple filing separately.
Also, this deduction falls under the same category as sales taxes and local income tax. Note that if you live in a state with high property taxes, you may not be able to deduct everything you are required to pay.
Remember, you can either deduct state and local income taxes or federal government sales taxes, but not both.
With the expectation of paying a large loan, you can deduct discount points you get when you take a mortgage. Sometimes you can deduct the amount in one year, but you can deduct it over the loan’s lifetime in other situations.
If the home seller paid the points for you, you could still deduct them. However, you will need to copy that specific date and year since you will need it when you are selling your home.
The tax break perk for moving expenses is limited, and it’s active only when the duty members are army forces or veterans. They are allowed to deduct the points since they are transferred from one station to another.
Home office expenses
If you are self-employed, you can claim home office deductions. The deduction applies to small business owners only who use part of their home as an office to meet their customer’s needs.
Renewable energy tax credits
Suppose you have looked forward to installing a piece of equipment that can generate renewable electricity in your home, like solar panels, wind turbines, among others. You can claim tax credit on those items as a plan for a green planet.
Tax benefits of selling a home
Whenever you are selling your home, you want to make some profit or capital gains. You get a capital gain when you sell your home at a higher price than if you bought it.
Uncle Sam treats capital gains as taxable income. At this stage, tax benefits come as a form of exclusion that most sellers don’t like paying.
If you owned a home for a very long time, you could not pay taxes for up to $500000 of the capital gain as income. For married, taxpayers’ exclusions are capped at $250000 if the couple is filing separately.