Recent improvements in the economy and housing market have enabled more people to purchase their own homes. Whether you’re a first time home-buyer or a long-time homeowner, there are several ways to save money on taxes simply by owning a home. Here are some of the most common tax deductions for homeowners.
1. Mortgage Interest
It may be nice to know that you can deduct a large part of your monthly mortgage payment on your taxes – the interest! Unless your loan is worth more than $1 million, you can deduct all of the interest that you pay each month.
Even if you refinanced your loan or have a home equity loan or line of credit, equity debts that are less than $100,000 are still fully deductible.
Another big part of that monthly mortgage payment is taxes, which are also deductible. Every month the taxes you pay go into an escrow account to be saved for a yearly payment, and you should get an annual statement from your lender with the yearly amount, which can then be deducted.
However, first-time homeowner’s usually don’t purchase their house on January 1st, so the taxes for the home must be split between the owners for that year. When you closed on the home you should have received a settlement sheet that has additional tax payment data. It will also explain how the tax payments should be divided between the previous and new owners, so you each pay only your portion of taxes for that year.
3. Energy Tax Credits
If you made any energy improvements to your home, many of those are eligible for a tax credit. This includes installing energy-efficient windows and doors, a solar water heater or electric, geothermal, or small wind energy system. The tax credit is a 10% credit up to $500, but once you take it you cannot claim it again. If you’ve never claimed the credit in the past, look into now!
Some of the fees you’ll pay to your mortgage lender are called “points.” Each point is worth 1% of your loan principle, and usually one to three points can be found on a home loan. However these points can add up to thousands of dollars, so deducting them could save you a lot money. Points are fully deductible, even refinanced mortgage points. However it’s important to note that refinanced mortgage points are only deductible over the life of the loan, so you’ll have to split up the amount of the points and deduct the divided amount.
For more information on homeowner’s insurance and how to save money, talk to the professionals at Insurance Center Associates.