Home is where the tax breaks are: 7 tips
WASHINGTON – March 11, 2013 – While economists and investors can debate whether buying a home is still part of the American dream, it’s undeniable that the tax code remains highly favorable to people who own instead of rent.
Whether you were a first-time buyer, a longtime homeowner who refinanced or a seller, there are a host of important deductions available.
The easiest way for a family to get more than just the standard deduction is to claim tax breaks related to a house. Charitable deductions or a smattering of health care costs might not get you above the $5,950 deduction for individuals or the $11,900 mark for married couples. But a few of these big-time breaks in housing can push you over the top and result in a much bigger refund.
The downside is no more simple tax returns since you’ll have to itemize. But the money you’ll get back makes it worthwhile.
Here are seven important tax tips for homeowners:
• Mortgage interest is your best friend. Taxpayers collectively get roughly $100 billion annually in mortgage interest breaks. If you bought a home or refinanced in the last few years, the savings are even more significant, as more than half your monthly payment goes toward interest.
• Mortgage insurance is still deductible. There were fears that the deduction for personal mortgage insurance would fall victim to fiscal fights in Washington. However, Congress left it in place. That’s a huge boon to lower-income homeowners who often can’t afford a big down payment and must pay private mortgage insurance until they have at least 20 percent equity in their homes.
• Taxes are tax deductible. It sounds odd and is frequently overlooked, but homeowners can deduct their local and state property taxes on federal tax returns. There also may be special property tax benefits for lower-income homeowners based on your state or municipality of residence, so look into further breaks specific to your community.
• Qualified renovations count. Fixing a leaky faucet or putting crown molding in the living room is not tax deductible. But there are a number of items in the tax code that allow for tax breaks and credits. A host of items covered under residential energy efficiency can provide tax relief, including new solar panels or certain water heaters. There are also deductions available for home office improvements, as well as for medically necessary changes, such as an entry ramp or a handicap-accessible bathtub.
• Unqualified renovations can count later. While that addition might not be “necessary,” the expense could be an important part of reducing your tax burden when you sell. This is especially%