Owning a home comes with several different tax benefits to consider. This article will break down some of the different tax credits and deductions available to homeowners.
What Are Tax Credits?
A tax credit is money taken off your tax bill, meaning you will owe less on your taxes. For example, if you receive a tax credit of $400, then you will owe $400 less on your taxes. Below are some examples of tax credits.
Renewable Energy Tax Credits: If you buy or install additions that generate renewable energy such as solar or wind, you can claim a tax credit for these costs. Solar water heaters and geothermal heat pumps can also be included in this tax credit. Go to energy.gov to see what tax incentives your state offers for renewable energy improvements.
Mortgage Credit Certificates: Certain states have home buyer programs that offer mortgage credit certificates, which give you a credit on your federal tax bill of up to $2,000 per year.
What Are Tax Deductions?
A tax deduction reduces your taxable income. For example, if you make $60,000 per year, and you’re able to deduct $5,000 for that tax period, this reduces your taxable income to $55,000. Read below for some examples of tax deductions.
Mortgage Interest: Depending on how much you borrowed and when you bought the home, you may be able to deduct mortgage interest from your taxes.
Private Mortgage Insurance (PMI): If you took out your home loan in 2007 or later, your private mortgage insurance payments may be deductible.
Property Tax: Some homeowners can deduct property taxes, state and local income taxes, along with sales taxes. These deductions can reduce your taxable income by up to $10,000 (or $5,000 if married and filing separately).
Home Equity Debt: If you use home equity debt to make additions or improvements to your home, you can deduct the interest paid on that home equity debt from your taxes.
Home Office: If you’re self-employed and use part of your house exclusively for business purposes (such as meeting clients), then your office expenses may be deductible as well.
Medical Equipment: For any home improvements or installations of medical equipment, you may deduct the costs of these features, as long as they’re used to aid you, your spouse, or dependents who live in your home.
There are several tax benefits to buying and owning a home. However, the tax credits and deductions you qualify for can vary depending on your unique situation. Make sure to talk to your mortgage lender who can help you better understand your tax benefits. You should also speak to an accountant or tax professional to learn more.