Whether you’re preparing your taxes for next year or considering buying a home, it’s important to understand all of the potential tax breaks you can get by being a homeowner. With the new Tax Cuts and Jobs Act, fewer Americans will need to itemize the returns in order to receive the maximum amount of tax benefit.
However, there still a lot of American homeowners that will be itemizing their deductions. Here is a breakdown of the five biggest tax breaks for homeowners who itemize.
#1. Mortgage interest.
The major benefit of homeownership is that you can deduct your mortgage interest on your taxes. By the end of January, all homeowners should receive a 1098 form with the total interest paid throughout the year. You can always add it to your taxes to see if itemizing is a better option than the standard deduction.
#2. Interest from home equity lines of credit.
Any type of interest you pay on your home can be tax-deductible this includes a HELOC, or a home equity loan, refinance or second mortgage.
#3. State and local property taxes.
You can deduct your state and local property taxes on your return however, recent rules may lessen the appeal of this perk for some homeowners. From 2018 on, the total deduction for your combined state and local income, sales and property taxes is capped at $10,000. Most homeowners are below the limit except for places like California where our property taxes are quite high.
#4. Rental income.
Renter ship in the United States is near a 50 year high with 35% of the population renting rather than owning. That’s a lot of cash that homeowners can tap into. If you recieve rental income, you need to report this on your taxes but the benefit comes from being able to deduct the cost of repairs and improvements that you make to that space. If you own commercial or residential property as an investment rather than occupying the property yourself, repairs to these properties are also deductible but there are some tax laws that differ between homeowners and those that are just landlords.
#5. Home office expenses.
This can be a tricky deduction because if the space is used for anything else it cannot be used as a home office. However, the requirements for the deduction has changed for 2018. Deductions are limited to self-employed workers and it must be used regularly. This can trigger a red flag or an audit so use this deduction carefully.
Bonus: Capital gains from a home sale can also be a great deduction. This allows home sellers to keep the profit from a home sale without paying taxes on it. If you’ve lived in the property is your primary home for two out of the last five years you can make up to $250,000 profit as a single person, or $500,000 as a married couple completely tax-free. So, if you’re not planning on reinvesting that profit into your next home, you could benefit from this major tax deduction.
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