With tax day right around the corner, homeowners, especially those doing their own taxes, need to know that the Internal Revenue Service gives you special treatment, offering tax breaks to you that homeowners in many other countries don’t receive.
Even if you’re not eligible to receive all these tax breaks, they still can save you a lot of money and they are at least part of the reason why many people decide to stop renting and buy a house.
Here are five tax breaks that homeowners should consider when they fill out their tax return:
1. Mortgage insurance. If you owe more than 80 percent of what your house is worth, you have mortgage insurance. That’s the bad news. The good news is what you pay either is fully or partially tax deductible. It is fully deductible if your adjusted gross income is $100,000 or less or if it is $50,000 or less for married taxpayers filing separately. If your income exceeds those limits, mortgage insurance is partially deductible.
2. Mortgage interest. If you haven’t repaid your mortgage, you pay mortgage interest. You pay a lot of interest if you owe a lot on your mortgage, and you pay much less if you owe just a little bit. Whatever interest you pay reduces your income, assuming you itemize deductions when you do your taxes. The amount of interest you paid is included on the Form 1098, which your lender sent you in January or February.
3. Points. These are the fees you may have paid to get a mortgage or to refinance the mortgage you already have. If it is a first mortgage, you can deduct what you paid in points. For a mortgage refinance, you usually can’t deduct the full amount.
4. Real estate taxes. These are referred to as property taxes in some states, and some people don’t know how much they pay because the lender pays them from your escrow. These taxes are 100 percent deductible. Again, Form 1098 will list the amount you paid.
5. Energy credits. This tax break is for homeowners who invested in energy-efficient windows or doors under the requirements of the federal Energy Star program. The tax credit, which applies to primary residences and second homes but not to rental properties, is equal to 30 percent of the cost of the windows or doors.
We just touched on the basics here, so for more information, talk with a tax preparer or call the IRS help line at (800)829-1040 or visit these resource links at IRS.gov and Energystar.gov: Tax Information for Homeowners, Tax Credits for Home Buyers, Federal Tax Credits for Consumer Energy Efficiency
- Celebrity Tax Evaders
- How to Negotiate with the IRS
- 8 First-Time Homebuyer Tips Your Real Estate Agent Won’t Tell You