Which Home Expenses are Tax Deductible?
When you buy a home you can expect to be more hands on with your finances than ever before. Taking on a home as an investment, and any expenses that come with it, is a big responsibility. One way that savvy homeowners work to regain some of that capital is through finding tax deductions.
Below are various types of home expenses and options for making the most of your home financially.
Deductions vs Credits
A quick guide to get you started! Tax deductions and credits are not the same thing.
A deduction lowers your taxable income. So when you file a deduction, the amount is subtracted from your total adjusted gross income and this means that your taxable income is lower. This lessens the amount of money you owe on your taxes.
A credit is a direct reduction on your tax bill. They often have the potential to lower your tax bill more than a deduction would.
Both are worth your time, as they can both save you money in the end, though it can be argued that a credit has more appeal than a deduction due the direct savings aspect.
Savings Through Energy-Efficient Home Improvements
Are home improvements tax deductions? Certain upgrades have the potential to be deductions; more specifically, energy-efficient upgrades are one area where you can potentially save. In fact, upgrading your home to become more energy-efficient can save you money in more ways than one.
You’ll save money on your energy bill, which will help you in the long term as you recoup money from your initial investment. Secondly, making any improvement to your home can help when it comes time to resell the property. Energy-efficient upgrades will pique buyer interest, since they know they’ll save money on their energy bills. On top of all these benefits, there is also a homeowner tax credit.
The Residential Energy Credit is a great resource for checking what sort of incentives currently exist for installing alternative energy sources. This includes solar panels, geothermal heat pumps, and solar water heaters. Your individual state may have additional incentives.
Mortgage Interest Tax Deduction
This deduction is specifically meant to make it more affordable to own a home. You can deduct the amount of interest you’ve paid on your mortgage. This is good for up to $750,000 of mortgage debt.
The Property Tax Deduction
This is an interesting deduction, because it’s essentially a tax deduction for paying your other taxes. Every year you can write off your property tax expense for the year as one of your deductions. Be aware that it only applies to the amount you paid, so if you split these costs with the previous homeowner, only what you paid during the year applies.
A Deduction for Your Home Office
If you are a small business owner who uses part of your home only for business, then you may qualify for a deduction.
There are a few different factors that affect how much the deductible is, including the percentage of the property used for your small business.
The home expenses you can list for this include things like real estate taxes, utility bills, office repairs and maintenance, rent, homeowners insurance premiums, and homeowner association fees.
To qualify for this, be sure to keep a thorough record of your receipts for these expenses throughout the year. Not only should you keep good records, but be sure you never file a tax credit for buying house supplies or other expenses used in both your house and your office without drawing a clear line on what is for your business and what is for the rest of your home.
Frequently Asked Tax Questions for Homeowners
Is there a first-time buyer credit?
There used to be a tax credit for buying a house for the first time. The first-time buyer credit does still apply if you haven’t used it yet and if closing took place on or before September 30th, 2010.
Are home repairs tax deductible? There are home improvements that are tax deductible, such as making your home more energy efficient, but home repairs are not. The exception to this is when the repairs are to a home office. If the repairs are done to a space used exclusively for business, then that may be used for a deduction.
When you are wondering what home expenses are tax deductible, you can always contact a tax professional to clarify. You may even choose to do your taxes yourself and still consult a professional with questions. Also keep in mind that tax laws change year to year, and so do the available deductions and credits. You’ll want to stay current on what you can and can’t do from year to year.