There are tax breaks that come along with owning your home. These breaks may serve as an incentive for the purchase of homes within certain targeted areas of the country or may make up for any losses a homeowner might face when selling his or her home. As a homeowner it is important to understand what tax breaks are available to you in order for you to take advantage of them and help your tax situation.
These include tax breaks that come when you sell your home, breaks for losses associated with a sale and incentives for certain types of homebuyers, such as first-time home buyers. Here are some tax tips for homeowners or anyone looking to purchase their first home.
Common Tax Breaks
As a homeowner, one of the most common deductions you will take is the one for the interest you pay on your mortgage. The mortgage interest deduction allows a homeowner to receive a reduction in their taxes, with the ability to deduct interest for a home valued at $1.1 million or less. In addition to the mortgage interest deduction, low-income homeowners who were required to take out private mortgage insurance to secure a loan (not to be confused with homeowner’s insurance). This particular deduction may be expiring soon, so it is important to claim it as a homeowner if you qualify.
Tax Incentives for First-time Homebuyers
If you first purchased a home in 2008, 2009 or 2010, you may qualify for a first-time homebuyer credit. This credit, which was extended for purchases with a closing between June 30 and September 30, 2010, reduces your tax bill or increases your refund, depending on how much you owe in taxes already. Qualifying for the credit is based on when you purchased and closed on the purchase, income (based on your modified adjusted gross income) and can be enhanced by military service or working for the federal government. If you received the credit and the home is no longer your primary place of residence, you may be required to repay the balance you received.
Home Seller Tax Breaks
IRS Publication 523 explains ways in which you as a homeowner can either take an exclusion for any gains from the sale of your home or write off a loss associated with such a transaction. As an example, if you failed to deduct all of the points paid to secure a loan for your mortgage, you may be able to deduct those remaining points in the year in which you sell the house.
Points represent 1% of the loan’s amount that a lender charges in exchange for a lower mortgage interest rate. A maximum exclusion in gains of up to $250,000 from the sale of your home may be taken. The ability to take the exclusion depends on a few factors, which include your meeting the ownership test, use test and other rules. A home owned jointly where separate returns are files permit you and the co-owner to claim up to the maximum exclusion amount on an individual basis.
Tax Help for Homeowners that Experience a Loss
If you were the victim of a catastrophic loss, such as damage from a fire or an earthquake, it may have been covered by insurance but require you to meet an out-of-pocket cost (such as a deductible). You may be able to deduct your costs associated with those losses on your taxes. Although your out-of-pocket amount may be deductible, any loss covered by insurance would not be considered deductible for income tax purposes.
If you’re a homeowner, there are plenty of tax breaks and incentives available to you. Talk with an experienced R&G Brenner tax professional to make sure you’re taking advantage of all the tax credits, deductions, and write-offs to which you are entitled.