The federal government wants you to be a homeowner. This is demonstrated in several ways. First, the government encourages homeownership by insuring mortgages against default. Secondly, a variety of tax deductions are available for homeowners. Even in a depreciating real estate market, the tax benefits of owning a home can be compelling reasons to buy instead of rent. However, there is much confusion about what can and cannot be deducted regarding home ownership. Every situation is a little different, and seeking professional tax advice prior to using these suggested home ownership tax benefits is advised. (For more on taxes and homeownership, read A Tax Primer For Homeowners)
Deduct mortgage interest and real estate taxes. The mortgage interest deduction is perhaps the most popular home ownership tax deduction. The tax code reads that you can deduct the interest payments used to refinance or acquire your principal residence. This deduction can result in homeowners lowering borrowing costs by almost a third. Many homeowners use this tactic to turn high-interest credit cards and automobile loans into low interest, tax deductible expenses. However, one needs to think carefully about doing this. Although it does provide tax benefits and a lower monthly payment, you are securitizing an unsecured debt with your home in the case of credit cards. Therefore, if you don't make your second mortgage payment, you will not only get a negative mark on your credit report, you could lose your home
If you bought a home this year, deduct any money paid toward points or origination fees. You cannot deduct closing costs. Points paid on a new mortgage loan for the purchase or improvement of a principal residence are deductible for the year in which they were paid.As you know, mortgage interest is deductible. What many new homeowners do not realize is the portion of interest generally paid upfront at the closing is also tax deductible. If you purchase your home on any day other than the first of the month, interest is due between the purchase day and the closing. Remember to take advantage of this homeownership tax benefit. In addition, loan discount points and origination fees are also generally tax deductible. Believe it or not, it doesn't matter who paid these fees for the new homeowner to deduct them. Therefore, even if the seller pays the costs, you can deduct them off of your tax return
If you refinanced your mortgage this year or took out a loan to buy a second home or investment property, deduct any points you paid equally over the life of the loan. Any points paid on a refinanced mortgage or a loan to purchase a second home or income property must be spread over the life of the loan. Some exceptions apply. How to deduct points from a refinanced mortgage or loan for a second home
Deduct private mortgage insurance (PMI). Taxpayers with adjusted gross income of $100,000 or less can fully deduct premiums for private mortgage insurance (PMI). The deduction is allowable only for insurance on loans that were originated after Dec. 31, 2006, and before Jan. 1, 2011. Deduct PMI from taxes
If you moved 50 miles or more for a new job, deduct moving expenses.
If you relocated for a new full-time job at least 50 miles away from your previous home, you can deduct the cost of packing, transporting or storing your household goods. Tax deductible moving expenses
If you sold your house this year, see if you're subject to a capital gains tax. If the profit you received from the sale of your house is under $500,000 for married couples or $250,000 for single owners, you are exempt from the capital gains tax. Sellers could be exempt from Capital Gains tax
Home improvements and mortgage closing costs are not tax deductible. But, when you sell your house, they can be used to offset your capital gains tax burden, should you have one. Keep all receipts of permanent home improvements and mortgage closing costs so they can be figured into the adjusted cost basis of your home when you go to sell. Remodel your way to tax deductions
Take advantage of energy efficiency tax credits. Going green is good for the environment and your wallet. You can qualify for a tax credit with documentation of energy efficient updates to your home. Go green to save green
If your home was damaged from a sudden, unexpected event, such as a natural disaster, fire, vandalism, or theft, deduct some of the loss. You may deduct all expenses not covered by your homeowner's insurance, minus a $100 deductible and 10 percent of your adjusted gross income.