Owning a home is part of the American Dream. Working hard, saving money, finding the right house, and going through the mortgage process all pays off when you move into your own home and being to enjoy the perks that come with what is likely to be your largest financial investment. Some of those perks come in the form of tax breaks. And with tax season here, it is time to educate yourself about those tax breaks. You might be surprised to discover that many of your biggest home-related expenses are often tax deductible.
Here are the top four tax breaks for homeowners:
MORTGAGE INTEREST
The most significant tax break you’ll get is a mortgage interest deduction, which is nice since a huge part of your monthly mortgage payment goes towards paying off interest for a while after your purchase. Per Nerdwallet.com:
“The mortgage interest deduction is a tax deduction for mortgage interest paid on the first $1 million of mortgage debt. Homeowners who bought houses after Dec. 15, 2017, can deduct interest on the first $750,000 of the mortgage. Claiming the mortgage interest deduction requires itemizing on your tax return. The mortgage interest deduction allows you to reduce your taxable income by the amount of money you’ve paid in mortgage interest during the year. So if you have a mortgage, keep good records — the interest you’re paying on your home loan could help cut your tax bill.”
REAL ESTATE TAXES
Another large deduction you get to make as a homeowner is on your property taxes. As a homeowner, you will always have to pay some form of real estate tax. If you have an Escrow Account, which most mortgages do, it means you have been paying a portion of your property tax bill for the year as part of your monthly mortgage payment. At the end of the tax year, your lender will send you a statement, which will tell you what you have paid in taxes and interest and how much went into your escrow account to be used toward taxes. You will be able to deduct the amount your lender paid from your escrow toward taxes.
POINTS
When you purchase a home, you have the option to pay Mortgage Points to your lender to lower your interest rate. A point is typically 1% of the loan price, so if you bought or built a new home that cost $300,000 and you paid your lender for one origination point, this should enable you to deduct the $3,000 in closing costs paid from your taxes for the year of the home purchase.
ENERGY TAX CREDITS
Making improvements to the energy efficiency of your home will not only save you money on energy costs, it may also help you qualify for a tax credit. Tax credits can be better than tax deductions as they are a dollar-for-dollar savings no matter what tax bracket you are in. Things like upgrading windows, roofing, appliances and more with energy efficient equipment will often count toward a tax credit. But since the IRS does change things from year to year, be sure to check with them beforehand so you will know what tax credits you qualify for. https://www.energystar.gov/about/federal_tax_credits
If you’re thinking about selling or buying a home in the New River Valley area, contact professional, experienced Realtor Desi Sowers and let her assist you with all your real estate needs. Give her a call today at 540-320-1328!
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