It’s tax time again. Fortunately for homeowners, there are a number of deductions you can take that might help relieve your tax bill this year. We’ve compiled a list of your best bets for reducing your tax burden. Property tax are almost always tax-deductible
Mortgage interest. Probably the best known tax deduction for homeowners is to deduct interest paid of your mortgage. There are restrictions and sometimes it may be better to take the standard deduction rather than itemizing, but the mortgage interest deduction is one many homeowners routinely claim.
Origination Points and Discount Points on financing or refinancing. The IRS considers paid points as pre-paid interest on a mortgage. You’ll need to figure out whether you can deduct all of the points at once (generally for first time homebuyers) or must spread the deduction out over the life of the loan (generally for a second home or a refinance.)
Primary Mortgage Insurance (PMI). If you bought a home in 2007 or later with less than 20% down, you may be able to deduct the cost of your primary mortgage insurance. This deduction was renewed for another year, but it may not last for much longer.
Interest on home-improvement loans, Home Equity Loans, and Home Equity Lines of Credit. Similar to mortgage interest and origination points, loans on your property may be deductible. The loan may not be for an amount greater than the value of the property, and the IRS imposes a $1 million loan size cap.
Home Improvements Speaking of home improvements, some of those improvements may be tax-deductible. Home improvements made for medical reasons, for example, can be tax-deductible. If you are making home renovations to accommodate a chronically ill or disabled person, and the renovations do not add to the overall value of the home, the project costs are typically 100% tax deductible. Repairs and improvements made for aesthetic purposes are not tax-deductible, but improvement to increase energy efficiency do come with some credits.
Energy-efficiency tax credit/Renewable-energy tax credit. A lot of folks are improving their homes by adding energy efficient storm doors, windows, insulation, air-conditioning and heating systems. If you made any of those improvements last year, you could be eligible for a tax credit of up to $500. Similarly, if you’ve installed equipment that uses renewable sources of energy, such solar panels, geothermal systems or wind turbines, you may be eligible for the Renewable Energy Efficiency Property Credit. The credit can apply to up to 30% of the cost of the equipment. There is also a credit for purchasing an electric vehicle.
Ground rent. If you own your home, but rent the ground underneath it, there are options to deduct the “ground rent” you’ve paid to the owner. Land leases must be for a term longer than 15 years, and they can’t be used if you’re making payments on the land to buy it over time.
Property Taxes. Your annual property tax bill from the county may be deducted from your federal taxes. If you’re escrowing your tax payments with your mortgage, check your statements for the amount you’ve paid.
Home Office. If you work from home, you can typically deduct the expenses of maintaining a qualified home office. Tax deductions for a home office include renovations, telephone lines, internet service and the cost of heat and electric.
Of course, the best place to start is to search online for the IRS Tax Information for Homeowners Guide. There you’ll find more information about whether you’re qualified for these deductions and how to apply them. And remember to ask your MetroTex REALTOR for recommendations for a reliable tax professional.