Your House Can Pay You Back Big in Your Tax Refund: Here’s How It Works
As 2024 comes to an end, owning a home is more expensive than ever, according to The Institute. Case-Shiller U.S. National Home Price Index. On top of the mortgage itself, the average homeowner pays an additional $18,118 per year.Hidden costs“.
However, all of these expenses come with a silver lining – tax credits and deductions for homes can lead to a bigger tax refund. For homeowners, learning as much as possible about potential tax benefits can help you maximize your refund when it’s time to file your income tax return.
Most homeowners with a mortgage know they can deduct loan interest, but the many tax deductions and tax credits involved with owning a home are less obvious. Learn about all the tax deductions available to homeowners to get the biggest tax refund possible.
For more information about taxes, learn All about tax credits and how Create your own online IRS account to save time during tax season.
How do homeowners tax credits work?
Most federal income tax benefits for homeowners are tax credits, which are a reduction in your taxable income. The less income you tax on, the less tax you pay.
When you file your tax return, you must Deciding whether to take the standard deduction –$14,600 for single filers, $29,200 for married filers jointly, $21,900 for head of household or married filers filing separately – or itemized deductions, such as gifts to charity and state taxes.
To take advantage of homeowner tax deductions, you’ll need to itemize your deductions using Form 1040 Schedule A. Your itemized deduction determination depends on whether your itemized deductions are higher than the standard deduction. all best tax software can quickly help you decide whether to itemize (as well as help you fill out all the tax forms mentioned in this article).
Tax credit for homeowners No You are asked to itemize. They directly reduce the amount of tax you owe, and you generally can get these credits regardless of whether you itemize deductions.
The mortgage interest deduction is a major tax deduction
Mortgage interest — or the amount of interest you pay each year on your home loan — is one of the most common tax deductions for homeowners. It’s also often the most profitable, especially for new homeowners, who typically pay more in interest on their mortgage during the first year of their mortgage.
Homeowners filing jointly and single filers can deduct all mortgage interest on the first $750,000 of their mortgage debt, up to $1,000,000 if you deducted mortgage interest before December 15, 2017 . If you file your taxes separately, you can deduct half of these amounts—$375,000 or $500,000, respectively.
To deduct mortgage interest, you need to fill in IRS Form 1098you should receive this amount from your lender in early 2024. You can then enter the amount from line 1 of Form 1098 into line 8 of Form 1098 1040 Schedule A.
Mortgage points can also be deducted
you can buy mortgage pointsalso called “discount points,” which allow you to lower your mortgage interest when purchasing a home. Each 1% a home buyer puts on a mortgage above the down payment typically lowers the interest rate by 0.25%, but the exact amount depends on the lender and the loan.
Discount points can save you big money on a 30-year mortgage by lowering the total interest you have to pay over decades, and they can also save you taxes when you buy them. The IRS considers mortgage points to be prepaid interest, so you can add the amount you pay for the points to the total mortgage interest entered on line 8. 1040 Schedule A.
Mortgage interest tax credit could give new homeowners big bucks
Hosts who have received mortgage credit certificate A percentage of your mortgage interest payment is available as a tax credit from your state or local government, usually through your mortgage lender. Mortgage certificate credit rates vary by state and range from 10% to 50%, with a maximum credit limit of $2,000.
This homeowner tax tip is most effective if you are a first-time home buyer, which is defined as not living in the home you have owned for the past three years. if you are Buy your first homebe sure to ask your lender or mortgage broker to find out if you qualify for MCC.
To claim the mortgage interest tax credit, use IRS Form 8396. Remember, you don’t need to itemize your deductions to claim the tax credit.
Property taxes are deductible, but only partially
Local and state real estate taxes (often called property taxes) can be deducted from your taxes, but the amount is much lower than before 2017.
Due to the Tax Cuts and Jobs Act of 2017, you can only deduct up to $10,000 merged from your property taxes and state and local income taxes. Prior to 2017, all property taxes you paid were deductible.
To claim property tax relief, you need to track your property tax payments each year. Your real estate taxes may also be listed in Box 10 of the Form 1098 provided by your mortgage lender. Enter the total amount of real estate taxes you paid for the year on line 5b 1040 Schedule A.
If you are self-employed, you can deduct home office expenses
Homeowners who use any portion of their home, apartment, or apartment “exclusively and regularly” for their own business or side hustle can claim home business expenses using: IRS Form 8829. Renters can also take advantage of these deductions.
The easiest way to claim home office tax relief is to use Standard home office deductionbased on $5 per square foot for commercial use up to 300 square feet. The “normal way” to deduct a home office involves calculating the percentage of your home used for business. Both methods are reported using Form 8829.
Home office deduction does not apply remote workers company.
Get 30% back on electric vehicle charging station fees
Electric vehicle charging stations can give you a tax refund. If you install any alternative energy charging station in your home, you can get a credit of up to 30% of the cost or $1,000, whichever is less. document IRS Form 8911 Apply for tax credits on clean energy installation costs.
Energy efficiency tax credits could pay off big
You can get 30% of the cost of solar installation as a tax credit.
If you made energy-efficient improvements to your home in 2024, you may be able to get some of the money back as a tax credit, but it gets a little complicated. have Two tax credits for home energy improvements ——Residential clean energy credit and energy-saving home improvement credit.
The Residential Clean Energy Credit provides 30% rebate on any money you spend to install solar power, solar hot water, wind energy, geothermal heat pumps, biomass fuel systems or fuel cell properties. The only restriction is fuel cell property – $500 per half-kilowatt capacity.
Energy efficient home improvement credit, also known as Non-Commercial Energy Property CreditIt is then divided into two categories – “residential energy property costs” and “qualified energy efficiency improvements.”
In the case of First Energy Property Cost, you’ll receive a flat tax credit of $50 to $300 for installing an Energy Star-certified project like a heat pump, water heater or furnace. In the case of a second qualified improvement, you can get a 10% tax credit toward the cost of the improvement, such as adding insulation, repairing the roof, or replacing windows.
The Energy Efficient Home Improvement Credit previously had a lifetime limit of $500 for all improvements, but starting in tax year 2023, Inflation reduction method Replace the lifetime limit with a $1,200 annual limit.
To apply for the 2023 tax credit for energy-efficient home improvements, you need to IRS Form 5695.
You can deduct the interest on your home equity loan
Any interest accrued on a home equity loan or second mortgage can be deducted from your taxes just like regular mortgage interest, and if you buy the home after December 15, there is an important limit on the maximum total loan amount of $1 million. or $750,000 (for joint filers) in 2017.
It’s also worth noting that the 2017 tax law limited the deduction for home equity loan interest to “Buy, build or substantially improve“House. If you borrow money to buy a new car or take a vacation, you’re out of luck.
If you did pay interest on a home equity loan that went directly to your residence, you can claim the deduction on the same line as mortgage interest and mortgage points: Line 8 Form 1040 Schedule A.
When selling, include all home improvements in your cost basis
Any income you make from selling your home is taxable as capital gains (with one notable exception – see below). Your proceeds are calculated based on the difference between the home’s sales price and your “cost basis.” This cost basis includes what you paid for the home, the price of improvements you might make and any damage to the property due to depreciation or casualties.
If you installed a new roof, replaced the furnace, refinished the floors, or even landscaped the garden, be sure to include these costs to increase your adjusted basis and reduce the amount of capital gains when you sell.
You can get big tax breaks when you sell your primary residence
When you sell your home, you pay taxes on the amount you make from the sale as capital gains. However, if you lived there for two of the five years before selling, you’ll get a very large exemption – $500,000 for married filing jointly and $250,000 for single or separate filers.
This tax exemption is available to all Americans, regardless of their age or how many times they have benefited from it before. Please note that residency requirements apply whether you own a home or not. If you rent a home for two years and then buy it, you can sell it at any time with the standard residential exclusion.
You may receive tax information regarding the sale of your home Form 1099-Syou will then report your final gain to the IRS (excluding $500,000/$250,000) Form 8949. If you don’t receive a 1099-S form and your home profit is less than the exemption amount, you don’t need to report sales tax at all.
You can deduct home improvements made for medical reasons
Medical expenses can qualify as a major tax deduction, but only if they exceed 7.5% of your adjusted gross income, which is essentially your taxable income. Any home improvements related to a medical condition—such as safety bars, accessible ramps, wider doorways, railings, and elevators—can be included in the tax deduction for medical expenses.
Keep all your receipts and invoices and include the total cost of improvements or additions and any additional medical and dental expenses on line 1 1040 Schedule A.
What household expenses are not deductible from taxes?
Despite all the tax deductions available to homeowners, there are still some home-related expenses that cannot be deducted from your income.
- Your mortgage down payment.
- Any mortgage payment against the principal amount of a loan.
- Utility costs such as gas, electricity and water.
- Fire or homeowners insurance.
- House cleaning or lawn maintenance.
- Any decrease in the value of your home.
Everyone’s tax situation is unique. Before making any major tax decisions, we recommend consulting tax professionals Who can help you understand federal and state tax laws.
