Owning a home doesn’t come cheap, but it’s always great to know that some of your expenses are tax deductible. If you want to know how you can minimize the cost of owning a home by maximizing homeownership write-offs, you’ve come to the right place. Please note that the information presented here is based on the 2015 tax year.
1 . Mortgage Interest
When it comes to mortgage interest, there is always room for you to deduct all the mortgage interest payments you make on your home. This applies not only to your home equity line of credit (i.e. on a loan worth up to $100,000) but also to a second mortgage. If you own another home, such as a mobile home or vacation cottage, you can deduct the mortgage interest for it as well, provided you stay there for at least 14 days a year or 10% of the duration it is rented out.
2. Mortgage Points & Insurance
Apart from mortgage interest, you can also deduct the mortgage points for your home in the same year you pay them. These are the points you pay on your mortgage. Additionally, you can also deduct the points you pay for a home equity loan. It is worth noting that points paid to refinance a home mortgage should be amortized based on the length of the loan. You can also deduct premiums you pay for private mortgage insurance on your loan, provided you earned less than $109,000 in 2015.
3. Property Taxes
Although this might seem a little bit strange, you can also deduct taxes on your taxes. The property taxes you pay are a deductible expenses. Therefore, always keep all your property tax bills as well as proof of statements because you never know when you will need them.
4. Home Office
There is a possibility that you qualify for a home office deduction on the taxes you pay if you own a home-based business. However, there are a few conditions that you ought to fulfill in order to qualify for this deduction. Your home should be the primary place you’re doing your business and you should only use the office space for work.
Generally, there’re two ways of calculating your deduction. The simplified option is to deduct $5 per square foot up to a maximum of 300 square feet, and this applies only to your home office area. A more advantageous yet complex method involves dividing your office’s square footage with that of your home, yielding what is known as a “business percentage”. The business percentage is then multiplied by allowable home costs, such as mortgage interest and utilities. The final result is the deductible amount.
5. Energy Credit
Implementing energy-efficient improvements can earn you credit of up to 10% of the cost of improvements you’ve made, up to a maximum of $500. It covers expenses such as new doors and windows, insulation as well as high-efficiency heating & cooling systems. Having renewable energy systems such as solar power can earn you a credit worth 30% of its total cost. State credit could also be available for these items which you can add to you federal credit.
6. Medical Home Improvements
In case you are suffering from a medical condition that requires home improvements, such as air filter for allergies or a stair lift if you have arthritis, you can write off some of the expenses as part of your medical deductions. However, it is only possible to deduct the portion of your medical costs exceeding 10% of your newly adjusted gross income (7.5% for those aged 65 and above).
In most cases, the difference between equipment cost and the increase in home value from the improvement is the only amount you’re allowed to deduct. Some improvements, including widening doorways for them to accommodate a wheelchair don’t add any marketable value to a home but are deductible provided you meet specified income requirements.
7. Home Sales
If you sold your home no more than a year ago, you could be eligible for a certain amount of tax savings from the transaction it self. The title insurance, advertising and cost of real estate agent’s fees are all deductible expenses. Furthermore, you can deduct improvements you made to your home so that you can sell it provided you have a taxable capital profit from the sale.
8. Home Damages
If your home was damaged by fire, weather, theft, or any other disaster, you have suffered a casualty loss, which may be deductible. If your cumulative loss was greater than 10% of your income and wasn’t covered by insurance, you are eligible to deduct the loss. However, you ought to be in a position to document the total value of what was lost.