April 15, also known as Tax Day in the United States, is rarely greeted with joy. It can cause a lot of stress and anxiety in individuals — especially if you are a homeowner. Although filing your tax returns is a time-consuming process, there are some perks to owning a home. One of which is enjoying home owners tax deductions this tax season.
Home Owners Tax Deductions to Know About
What are the tax benefits of owning a house? As a homeowner, here are some of the biggest tax write offs homeowners can take advantage of.
1. Mortgage Interest Deduction
This is definitely one of the most popular tax advantages of owning a home. For prospective homeowners, the mortgage interest deduction is often a major factor in deciding whether to rent or own property. For those who are already homeowners, this tax break is something they can take advantage of yearly.
Based on the Tax Cuts and Jobs Act (TCJA) of 2017, homeowners who are itemizing their tax deductions can deduct interest on the first $750,000 in loans for their home mortgage. For those who are married but filing separately, the deductible amount is $375,000.
However, if you purchased your home before December 16, 2017, you are exempt from the TCJA. Rather, you can enjoy the previous deductible amount of $1,000,000, or $500,000 if married filing separately.
Even if your loan is a home equity loan or used to purchase a second home, the limit for mortgage interest deduction is still the same. However, this home owners tax deduction is not applicable to those who are purchasing their third home, fourth home, and so on.
If you want to take advantage of the mortgage interest deduction, you must itemize on Schedule A of Form 1040. Otherwise, you can opt for the standard deduction.
2. Tax Deductions for Home Improvements
Generally, home improvements in your personal residence are not tax-deductible. However, you can enjoy home owners tax deductions if you make renovations for medical reasons or take advantage of energy-related tax credits for eligible installations.
- Medical Necessity Improvements. Home improvements made for medical reasons can be deducted as medical expenses, provided they aid a person with a disability. Examples include adding ramps for wheelchair access, widening doors and hallways, adding rails or a lift to stairways, and modifying bathrooms.
- Energy-Efficiency Upgrades. While the tax credit for energy-efficient home improvements expired on January 1, 2020, the federal government offers updated credits for eligible energy-efficient home upgrades. Examples of eligible projects may include installing solar panels, energy-efficient windows, insulation, and tankless water heaters. Always check current IRS guidelines or consult a tax professional to verify your eligibility.
- Home Equity Loan Interest. Interest on home equity loans is deductible only if the loan proceeds are used to buy, build, or substantially improve the taxpayer’s home that secures the loan. The total deductible mortgage debt must fall within the $750,000 limit ($375,000 if married filing separately).
- Home Office Deduction. If you are self-employed, you may qualify for home owners tax deductions if you use a part of your home exclusively for business purposes. You can claim it as a business expense on Schedule C. The IRS imposes strict guidelines for eligibility, so it’s best to consult a tax professional.
3. State and Local Tax Deductions
When it comes to tax benefits of owning a home, homeowners can also qualify for state and local tax deductions on their federal tax returns. These deductions have a limit of up to $10,000, or $5,000 if married filing separately.
In South Carolina, you can also qualify for specific property tax exemptions. If you are relocating to the state and are purchasing property, you can take advantage of the Legal Residence Special Assessment Ratio of 4% instead of the usual 6 to 10.5%.
Seniors aged 65 and older, as well as people with disabilities, can also apply for Homestead Exemption. This exempts property taxes on the first $50,000 of the value of their residence.
To qualify, homeowners should have been legal residents of South Carolina for at least a year. Lastly, veterans and active-duty military personnel can also apply for tax breaks.
North Carolina also has property tax exemptions for such as the Elderly or Disabled Exclusion and the Disabled Veteran Exclusion. There is also a Circuit Breaker Property Tax Deferment that allows seniors and people with disabilities to limit the portion of their income that will be spent on property tax.
To see if you can qualify for these real estate tax breaks, contact your local county auditor’s office. You also need to itemize your home owners tax deductions instead of taking the standard deduction.
Is Private Mortgage Insurance Tax-Deductible?
As of 2024, there is no deduction for mortgage insurance premiums. Private mortgage insurance was once deductible, but that expired following the 2021 tax year. As of writing, PMI premiums are not deductible.
How to Take Advantage of Tax Deductions for Homeowners
There are many reasons why people decide to become homeowners. Most people purchase a property when they start a family. Meanwhile, others may do it to have freedom when it comes to decorating or renovating their house. Regardless of the reason, though, homeownership leads to a certain perk: real estate tax breaks.
By now, you are well-aware of the real estate tax breaks that you can claim on your federal tax returns. However, simply qualifying for these property tax deductions isn’t enough.
You need to properly assess your tax records and make the necessary adjustments. It’s important to follow the correct procedures, use the right forms, and file tax returns on time.
Understandably, a tax break for buying a house can be a very confusing and overwhelming process, especially if you are a new homeowner. Add to that, home owners tax deductions can also change from year to year or from administration to administration.
If you want to make sure that everything is taken care of, don’t hesitate to consult a tax professional. If you’re part of a homeowners association (HOA), it may also be useful to have an HOA community manager. They can provide homeowners with high-quality and comprehensive information when it comes to home ownership tax benefits as well as other related issues.
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