Do you own a home? Are you thinking of buying a home? Were you one of the many that purchased a home last year? April 15th will be rolling around soon and it’s important for you to know what tax breaks and credits for which you qualify as a home owner.
Here are a few of the tax breaks for which you may qualify:
Mortgage interest paid at settlement. On mortgages of up to $1 million, home owners can deduct the interest paid at settlement if you itemize your deductions on Schedule A (Form 1040). This amount should be included in the mortgage interest statement provided by your lender.
Points. If you pay points to obtain your home mortgage, these fees can be deducted as long as they are associated with the purchase of a home. If you refinanced your home, these points are still deductible, but it must be done over the life of the mortgage.
Property taxes. You can deduct your state and local property taxes, as long as they are based on the assessed value of the real property. However, if your money is being held in escrow for the purpose of paying property taxes, you cannot claim this deduction until the money is actually taken out of escrow and paid.
Selling costs. Did you sell a home in the past year? You may be able to deduct the amount of your selling costs, such as repairs, title insurance and broker’s fees. The IRS only allows the deduction of repair costs if the repairs were made within 90 days of the sale. Selling costs are deducted from your gain on the sale.
Home office. If you use a portion of your home exclusively for the purpose of an office for your small business, you may be able to claim a deduction on your taxes for some costs. You may also be able to take advantage of this deduction if part of your home is used for storing items for your business.
Mortgage insurance premiums. You may be able to deduct the premiums paid for private mortgage insurance for your principal residence and for a non-rental second home. Generally, you are able to deduct the premiums paid for the current tax year only.
Home improvement loan interest. If a loan is taken out to make improvements on your home, you may be able to deduct the interest on this loan on your taxes. Qualifying loans must make “capital improvements” to your home, meaning the improvement must increase your home’s value, adapt it to new uses or extend its life.
Construction loan interest. If you take out a construction loan to build a home, you may qualify to deduct the interest. You can only use this deduction for the first 24 months of the loan, even if the actual construction takes longer.
For most people to take advantages of such tax breaks, you will need to itemize your taxes to get the deductions. Tax codes can be confusing, so you may want to consult the IRS website for information concerning deductions and credits. Additionally, consider meeting with a professional to ensure you’re not missing any deductions for which you’re eligible. Though it makes the tax-filing process more detailed, the benefits are worth it.
Need help selling your home? Need a representative to guard your interests when you buy a home? Contact the realtors at Homes of Minnesota today and we can help you.