Taking advantage of seemingly hidden homeowner tax incentives is by far one of the most effective methods for conserving cash. Before tax season rolls around while you’re living in your new home, review these money-saving filing tips:
Deduct your mortgage interest
Loan interest is a major concern for most new homeowners. With mortgage interest deductions (MID), you can, in most cases, deduct all or most of the interest you pay on your home loan. To qualify, you just have to submit mortgage payments with an intention to repay the full amount.
The MID also applies to secondary properties, including summer homes and rented real estate. However, to receive deductions for rented property, you must spend at least 14 days there per year.
More than half of Americans take advantage of the MID, saving an average of almost $2,000 each year, according to the Congressional Research Center.
“If you have taken out a homeowner’s loan, consider these deductions as Uncle Sam’s gift to you. These tax breaks will surely alleviate the financial burden of many taxpayers, especially those who are paying their mortgage,” tax expert and certified public accountant John Gregory told Market Watch.
Deduct your real estate taxes
The IRS also allows homeowners to deduct their property taxes, USA Today reported. Depending on your location, this deduction could net you serious savings. New Jersey and Illinois have the highest property tax rates, with residents paying annual taxes equivalent to just over 2.3 percent of their home values, the Tax Foundation found. Hawaii and Alabama sit at the other end of the spectrum with rates below 0.5 percent.
Don’t forget the home office
Approximately 10 percent of Americans identify as self-employed, according to recent polling data from Pew Research Center. If you belong to this group and have carved out a work niche in your new home, you can take advantage of the home office deduction.
“Contractors and freelancers can deduct home office expenses.”
The IRS allows contractors and freelancers to deduct work-related expenses, including those related to home office use. If you work in a dedicated space within your home that encompasses 5 percent or more of its total square footage, you can deduct up to 5 percent of your total utility costs. However, before you file, consult with a tax professional. The IRS is particularly strict about these deductions.
Go eco-friendly and get paid
Homeowners can receive multiple tax credits for making eco-friendly or energy-efficient improvements to their property.
“Going green has proven to be more than a trend; many people now seek out this way of living and want homes and communities that are more resource efficient and sensitive to the environment,” NAR President Gary Thomas said.
With these incentives in mind, carefully evaluate your filing situation and search for ways to save money on your new property by consulting with a licensed tax professional.