Whether you just bought a home in 2016 or plan to next year, the IRS wants to help you out at tax time. Determining credits and deductions can be tricky, so be sure to consult a tax professional to maximize on your investment. Below are a few tax-time tips from irs.gov, bankrate.com and marketwatch.com:
- Mortgage Interest – A major portion of your monthly mortgage goes toward interest, and that’s deductible (up to $1M). Plus, you can deduct interest you’re paying on a second mortgage or Equity Asset Line of Credit.
- Points – If you pay points to get a better loan rate on your home loan, they may offer a tax break too.
- For First-Time Buyers – The Mortgage Credit Certification can get you 20 to 30 percent of the interest you pay every year on their mortgage back as a straight tax credit. And pulling funds from an IRA to help cover a down payment or other costs, you can avoid the 10 percent penalty normally applied to early withdrawals.
- Property Taxes – Your share of property taxes charged at closing is fully deductible (see the settlement sheet). You can continue to deduct this year after year as well.
- Home Office Deduction – If you work from home, you may be able to take a deduction for the room or space used as your office, and can include expenses like mortgage interest, insurance, utilities and repairs. Calculated based on the percentage of your home you use for business, make sure that the information you provide is as accurate.
- Green Home Credits – The Residential Energy Efficiency Property Credit is 30 percent of the total cost, including labor and installation, of adding some renewable energy sources in your home like wind turbines, solar panels, geothermal heat pumps and fuel cells. The credit is set to expire on Dec. 31, 2016. The Nonbusiness Energy Property Credit is 10 percent (up to $500) for qualified energy-efficient improvements like adding insulation, energy-efficient exterior windows and doors, certain roofs, certain high-efficiency heating and air-conditioning systems, as well as high-efficiency water heaters and stoves that burn biomass fuel.
What’s not tax-deductible?
Property hazard insurance premiums are not deductible, even though the coverage generally is required as part of the home loan and is included as a portion of your monthly payment.
Other nondeductible residential expenses include homeowners association dues, any additional principal payments you make, depreciation of your home, and general closing costs and local assessments to increase the value of your neighborhood, such as construction of new sidewalks or utility connections.
Stay tuned next month for tax tips for home sellers. Happy 2017!