Well, it is that time of year again where you start thinking taxes! Now if you are a homeowner, that could mean some sweet deductions!
Whether you’re gearing up to file your taxes this year, researching what’s ahead for next year or simply contemplating the benefits to buying a house in the future, there’s a lot to consider. It’s up to you to take full advantage of the write-offs available to you.
Here’s what you can and can’t deduct.
You can’t really deduct home renovations/remodels, but there is an exception. If you make improvements to your home for medical purposes; such as adding wheelchair ramps or lowering cabinets for better accessibility, then you can deduct those renovations as medical expenses.
Selling your home or Sold?
You can deduct expenses from the sale price of your home, positively affecting your capital gains tax. You can deduct any costs associated with selling the home— home staging fees, legal fees, escrow fees, advertising costs, and real estate agent commissions.
State and Local Tax
Deducting state and local property taxes on your federal tax return has long been a primary financial benefit to owning a home.
For most, the biggest home-related deduction is for mortgage interest. You can deduct the interest you paid on loans of $750,000 or less.
The biggest benefit comes from being able to deduct the cost of repairs and improvements made to rental space.
“Let’s say you only made $5,000 on rental income but you spent $30,000 repairing (the rental space) that year,” Bayles says. “You can take that $30,000 deduction on your tax return, so that will reduce your taxable income dollar for dollar, which is huge. For someone making $100,000 on paper, it’ll look like you made $70,000, so your taxes are reduced.”
-Thomas Bayles, senior vice president of Mortgage Capital Partners in Los Angeles.
The main tax benefit of owning a house is that the imputed rental income homeowners receive is not taxed. Although that income is not taxed, homeowners still may deduct mortgage interest and property tax payments, as well as certain other expenses from their federal taxable income. Additionally, homeowners may exclude, up to a limit, the capital gain they realize from the sale of a home.
Benefits galore when you own a home. Looking to buy? Check out my featured listings!