From handling all of the maintenance to homeowners insurance, there are as many new responsibilities that come with owning a new home as there are benefits.
Although property taxes increase drastically with a home purchase there are a number of tax benefits offered to homeowners that you’ll want to take advantage of.
If you’ve made the leap into home ownership in the past year, you’ll probably be learning a lot about your tax situation when you file this spring.
Standard deductions simplify the tax process for those who don’t own a home or have a very straightforward tax situation. However, itemizing your taxes is a more complete way to make sure you’re receiving all of the benefits you’re eligible for.
Although a standard filing and deduction are simple, itemizing usually saves most homeowners a bundle on their taxes each year. For more on itemizing your taxes you can check out this article on the differences and check out this copy of a 1040 Schedule A (fully itemized) tax form.
For most homeowners, the biggest tax benefit comes from deducting the interest paid on their mortgage. Mortgage interest rate is completely deductible on loans under one million.
Homeowners can also claim the interest paid on cash-out refinances as well as home equity loans. Most generally equity debts of $100,000 or more are fully deductible.
Another big tax break for homeowners comes in the form of deducting property taxes. Every year your lender will send you a statement letting you know the exact tax-deductible amount for that year.
New homeowners must check their settlement papers to figure out how much they have paid since purchase because there won’t be a full year of information yet.
Property taxes are only deductible as an itemized expense, meaning you will have to fill out the schedule A form as opposed to a standard 1040 form.
Tax Credit v Tax Deduction
Deduction: reduces your taxable income. For example, a $1,000 tax deduction reduces your $50,000 taxable income to $49,000.
Credit: A dollar amount reduction in tax payments. A tax credit reduces a tax bill by the amount specified. If the tax credit is “refundable” and you don’t owe any taxes, you get a tax refund.
Energy Efficient Credits
Although many of the popular energy star tax credits expired at the end of 2011, there are still a few energy efficient tax credits available through 2016.
Qualifying geothermal heat pumps, small wind turbines and solar energy systems have a credit for up to 30 percent of the cost with no upper limit. Even though these are very costly upgrades, an essential 30 percent off tax credit should remind homeowners to be looking for tax benefits on everything they purchase through the year.