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6 Quick Homeowner Tax Tips

Tax season is here and as a homeowner, you may be entitled to significant deductions. Below are some tax tips to help save you money this tax season!


Tip #1 - Mortgage Interest Deductions


You can deduct the interest you pay on up to $750,000 of mortgage debt ($375,000 if married filing separately). If your mortgage is $1 million or more, be aware that you can’t deduct all your mortgage interest.


To qualify:

  • The mortgage must be secured by your home

  • The proceeds must be used to build, buy or substantially improve your primary residence or second home

You will not be able to claim the deduction on an investment property, and you can’t claim it if you’re borrowing against your home equity to pay for college, etc.


You pay more mortgage interest in the earlier years of your mortgage than in the later years. As a result, any homeowner tax benefits you see from itemizing may gradually decline (or it might not, if your property taxes go up every year), and the shorter your mortgage, the faster this will happen.


Tip #2 - Mortgage Points


If you pay discount points when you take out your mortgage, you can deduct them, usually in the year you pay them (but sometimes only over the life of your loan). To qualify, you need to have legitimately paid points to reduce your interest rate.

What if the home’s seller paid points for you? You can still deduct them, but keep a copy of that year’s tax return indefinitely, because you’re going to need it when you sell and have to remember to reduce your home’s cost basis—the price you paid for it—by the amount the seller paid for your points.


Tip #3 - Real Estate Tax Deductions


You can deduct state and local property taxes in the year you pay them. This deduction is limited to $10,000 per year ($5,000 if married filing separately) and falls under the same umbrella as sales taxes and state and local income taxes. If you live in a state with high property taxes and/or high income taxes, you may not be able to deduct everything you pay.


One more detail: You can either deduct state and local income taxes or state sales taxes, but not both. So your $10,000 limit applies to either property taxes plus state and local income taxes or property taxes plus state sales taxes.


Tip #4 - Home Office Deductions


If you’re an employee who works from home, you can’t claim the home office deduction. The deduction only applies to small business owners, including self-employed people, who use part of their home regularly and exclusively as their primary place of business.

Here are the two main exceptions to these rules:

  1. You can claim deductions for part of your home that you use to store inventory or samples for your business without meeting the regular and exclusive use criteria if your home is your only business location.


2. You can deduct expenses associated with a separate structure on your property that you use regularly and exclusively for your business, even if it’s not your primary business location.


What types of home expenses can you claim with the home office deduction? Here are the most common:

  • Real estate taxes

  • Home mortgage interest

  • Mortgage insurance premiums

  • Depreciation

  • Insurance

  • Repairs

  • Security system

  • Utilities

The home office deduction offers excellent opportunities for tax savings.

However, this tax break also has many rules that you must follow carefully to claim it legitimately. One of these is that you can’t double-dip by claiming the same deductions on both Schedule A and for your home office. Any good tax program will make these adjustments automatically.


Tip #5 - Energy Tax Credits for Renewable Energy


The “Renewable Energy Tax Credit” can result in a significant credit of 26% of the costs of major renewable energy installations in both 2021 and 2022. These credits were expanded and extended through 2023 with the Consolidated Appropriations Act of 2021. The Renewable Energy Tax Credit is unlimited (there is no cap), and in addition to equipment, it includes labor on installations for the following:

  1. solar energy systems (solar water heaters and solar panels and photovoltaic)

  2. geothermal heat pumps

  3. small wind turbines

  4. fuel cells

  5. biomass fuel stoves (new in 2021)

Before the most recent Congressional extension, the Renewable Energy Tax Credits were set to phase out on the following schedule for residential installations:

  • 2019: 30%

  • 2020: 26%

  • 2021: 22%

  • 2022: 0%

Post extension, the Renewable Energy Tax Credits phase out on the following new schedule:

  • 2019: 30%

  • 2020: 26%

  • 2021: 26%

  • 2022: 26%

  • 2023: 22%

  • 2024: 0%

The installations must be installed in a home you own and use as a residence (no rentals, but second homes qualify).


These energy tax credits are non-refundable, but can be carried-over to a future tax filing year. More information can be found on the Energy Star Renewable Energy Tax Credit site.


Tip #6 - Medically Necessary Home Improvements

As part of the medical expenses tax deduction, you might be able to deduct medically necessary home improvements that help you, your spouse or dependents who live with you. Examples include widening doorways, installing ramps or lifts, lowering cabinets and adding railings.


This can be an exclusive deduction to qualify for. You will have to itemize to claim it, and only deduct medical expenses that exceed 7.5% of your AGI. Modifications that increase the value of your home must be prorated so your deduction only applies to the medical part of your spending.

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