Current Tax Breaks for Homeowners
Photo: © Mark Bowden - iStockphoto
There are many benefits to owning a home, not the least of which are the financial advantages of home ownership. Homeowners can gain a number of tax benefits, and, combined with the Fed's indication to keep interest rates attractively low throughout the new year, home buying in 2012 is promising to be a financially astute plan. Consult with your accountant about which of the following perks you might enjoy.
Mortgage Interest Deductions (MID)
This deduction allows home owning taxpayers to reduce their taxable income by the amount paid in interest on their residential home loan. Since interest payments alone can easily be double (even triple) the sale price of the property, this deduction can be quite valuable!
In 2011, the legislature considered putting this tax benefit on the chopping block. The good news is that the deadline for action passed in November, and there is presently no proposal to limit this mortgage interest deduction.
Home Improvements
Improvements that add value to a home can be deducted. From increasing energy efficiency through improved insulation or high performance windows to installing qualifying medical improvements like wheel chair ramps, upgrading your home can pay you back with some significant tax breaks. (This doesn't apply to necessary home repairs, however.)
On the market?
Hang onto all records relating to the sale of your property, since selling costs can be deducted from any capital gains you realize from the sale. Selling costs can include agent commissions, title insurance, legal and inspection fees, even administrative and advertising costs. Some minor improvements and repairs might be considered selling costs, if performed within 90 days of the sale to increase the property's appeal. Moving costs might also be deductible.
Property Tax
Property taxes (called "real estate taxes" in some areas) are fully deductible. Take into account any city or state property tax refunds, as those will affect the total amount you can deduct.
Telecommuting Benefits
Current estimates indicate that 20 to 30 million people in the U.S. work from home at least part of the time. There are some great deductions to be had for telecommuters. Office supplies, computers, telephones, fax machines and other office equipment, including furniture, can all be deducted. So can painting or repairing the home office for upkeep. Also, calculate the appropriate percentage your home office uses of the utilities and household rent or mortgage.
Other Possible Breaks
The deduction for Private Mortgage Insurance premiums is set to expire soon, but it's been extended before, so there's a chance that benefit could continue. Various "green" technology benefits may be available. Be sure to ask your CPA about all the ways home ownership can save you big money.
