Homeowner Tax Tips
When contemplating whether to rent or buy a home, essentially the most influential factors is the tax reductions. Remarkably, house owners who itemize their taxes can deduct 100% of their home loan interest and property taxes from their income tax returns.
Meaning that if you're in a 28% tax bracket, you're essentially subsidized roughly 33% of your borrowing costs or more, rendering your property less expensive or permitting you to buy a larger home than you may have normally. Furthermore, big portions of your closing costs are tax deductible, and hundreds of thousands of dollars of any profit (or capital gains) that you attain when you sell your property are exempt from income taxes.
During tax time, it is important to know what you're eligible for, so that you can claim it. So, here are some critical need-to-knows about household related income tax suggestions to aid you to get the most tax-reducing bang out of your home-owning buck -- and to avoid hefty home ownership-related tax traps.
Through the course of the recent debate on Capitol Hill regarding if the mortgage interest deduction should be done away with (it won't be, not in the near future), it turned out that almost 40% of homeowners lose out on their major tax rewards annually when they don't itemize their income taxes. When you own a home and otherwise have a fairly straightforward return, it might be inviting just to take the standard deduction -- and if your mortgage, property taxes, and income are low enough, the standard deduction may outweigh your homeowners' write offs. But you may never recognize if you're losing out on the tax rewards of itemizing unless you try. Before you grab a pen and start completing that 1040-EZ grab those forms from your mortgage company and answer the questions on tax software like TurboTax, that can automatically do the math on whether itemizing or taking the standard deduction will result in the lowest tax bill -- or the highest tax refund -- for you. If you are not comfortable taking this step on your own, consult your tax attorney for help.
According to the Small Business Administration, the average home office deduction is $3,686 -- multiply that by your tax bracket -- 15%, 20%, 30% or whatever it is, and that's what you'll save on your taxes by writing off your home office. Realize, however, that the area you specify as your home office cannot be exempted from capital gains tax if you sell your home later. The $250,000 (single)/ $500,000 (married filing jointly) income tax exemption for capital gains is only good on your personal residence, after all -- excluding any space in your home you've reported as your tax-advantaged office. If you foresee selling your home for much more than you purchased it in the future, near or far, discuss this with your tax preparer to see if the few hundred bucks you'll save is worth the capital gains problem later.
Learn more about tax tips for homeowners. Stop by IRS Tax Help Attorneys where you can find out all about homeowners tax tips and what it can do for you.
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