Tax Breaks for Homeowners: What You Should Know

1. Mortgage Interest Deduction

Overview: Homeowners can deduct interest on up to $750,000 of mortgage debt ($1 million if purchased before Dec 15, 2017). This deduction includes interest on your primary residence and a second home.

Practical Tips:

• Ensure you itemize your deductions on Schedule A of your tax return to benefit from this deduction.
• Keep meticulous records of all mortgage interest payments.

Qualification Criteria:

• The mortgage must be secured against your home.
• You must itemize deductions to claim this benefit.

2. Property Tax Deduction

Overview: Property taxes paid on real estate are deductible on your federal income tax. The total deduction for state and local taxes, including property taxes, is capped at $10,000 ($5,000 if married filing separately).

Practical Tips:

• Pay your property taxes before the end of the year to claim them on that year's return.
• Keep your property tax bills and proof of payment.

Qualification Criteria:

• You must itemize deductions on Schedule A to claim.

3. Home Office Deduction

Overview: If you use part of your home regularly and exclusively for business activities, you may be eligible for the home office deduction.

Practical Tips:

• Use the simplified option for calculating the deduction: $5 per square foot of the home used for business (up to 300 square feet).
• Maintain a dedicated and exclusive area of your home for business.

Qualification Criteria:

• The space must be regularly and exclusively used for business.
• You must have documented proof of business use.

4. Energy Efficiency Credits

Overview: Credits are available for installing energy-efficient systems in your home, including solar panels, wind turbines, and geothermal heat pumps.

Practical Tips:

• Keep receipts and manufacturer’s certifications for all eligible installations.
• Check the Energy Star website for updates on qualifying products and enhancements.

Qualification Criteria:

• Systems must meet specific energy-efficient requirements.
• Credits include both existing homes and new construction.

5. Mortgage Points Deduction

Overview: Points paid during the purchase or refinancing of a home can be deducted.

Practical Tips:

• Points must be a percentage of the loan and customary for the area.
• Deduct points in the year they are paid if they are for the purchase of a primary residence; otherwise, amortize over the life of the loan.

Qualification Criteria:

• Points must be for home purchase or improvement to qualify for immediate deduction.

6. Home Improvement Loan Interest Deduction

Overview: Interest on loans taken out for home improvements is deductible if the loan is secured by your primary residence.

Practical Tips:

• Keep detailed records and receipts for all improvements.
• Ensure the loan is specifically for home improvements.

Qualification Criteria:

• Must be secured against your home and used for significant improvements.

Conclusion

Leveraging these tax breaks can significantly reduce your tax liabilities. It's crucial to maintain detailed records and consult with a tax professional to ensure you meet all qualifications and optimize your benefits.

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Legal Disclaimer: This guide is provided for informational purposes only and should not be construed as tax advice. Tax laws and regulations are subject to change, and individual circumstances may vary. Consult with a qualified tax professional or advisor to address your specific tax situation and compliance requirements.

To schedule your consultation, please use my Calendly link.

Best Regards,

Askia Roberts, CPA

RTW Advisors

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