In the past few weeks, your mailbox and inbox have no doubt seen their fair share of tax forms. Sometimes filing taxes can be daunting, but if you own your home there’s good news—you may be eligible for tax deductions!
So what deductions could you take advantage of this year?
Mortgage Interest Paid: The mortgage interest you’ve paid to your lender is tax deductible, and you should have received a document called Form 1098 from your bank that shows just how much interest you paid this year. This deduction is especially good news for folks who are still in the early years of their mortgage. Because a standard mortgage amortization schedule is front-loaded with mortgage interest, you’ll likely see bigger savings during the first 10 or so years of your loan. Interest paid on second mortgages, refinance loans, home equity loans and home equity loans of credit can also be deductible, but the IRS imposes more restrictions on those types of deductions. See your tax professional for more information.
Discount Points: Discount points are paid at closing to get a better interest rate on your loan. The more points you pay, the lower the interest rate on your mortgage. Borrowers typically pay anywhere from zero to 3 discount points, depending on how much they want to lower their rates. Buying discount points is a good strategy if you plan to keep your loan for many years. Because discount points are considered prepaid interest they are tax deductible. If you buy discount points when you purchase your home, the cost is usually deducted in full for that tax year. Discount point deductions on refinance loans, however, can be spread out over the life of the loan.
Home Improvements: Adding a new coat of paint or remodeling your kitchen probably won’t save you any money on taxes, but there are some home improvements that could be deductible or earn a tax credit.
- Residential Energy Efficient Property Credit: This credit is 30% of the cost of alternative energy equipment installed in your home, this generally means equipment that generates energy. Qualified equipment includes solar water heaters, solar electric equipment, wind turbines and more. This credit is only available through tax year 2016.
- Home Modifications for the Disabled: If you make certain home improvements to accommodate a disability, you may be able to claim those costs as a medical expense deduction. This includes such things as adding a wheelchair ramp, chair lift or grab bars; modifying hardware, electrical fixtures or railings; or widening doorways or aisles.
Home Office: There are a lot of rules for deducting the cost of your home office, but that doesn’t mean the deduction isn’t worth it. Just be sure that you follow these guidelines and talk to your tax pro if you have any questions. The two most important things to ask yourself about home expenses are: Do I use this space exclusively for work? Do I use this space on a regular basis?