Well, are you ready? Tax day is literally right around the corner. And if you are like me, you’re looking for every way to boost your deductions, get as much back, or simply not have to pay. As a homeowner, you get to enjoy a lot of different tax perks and breaks. But are you taking all of them?
There are a lot of tax breaks to enjoy but this year, many of those have been lumped into the standard deduction, which may actually be more than itemizing your deductions. This could be good or bad depending on how much deductions you have, but each one of these is well worth the investigation.
Mortgage interest.
This is been a major benefit of homeownership for years. You can deduct all of the interest you incur on your mortgage interest. The interest on a refinance or second mortgage can also be deductible following debt limitations depending on when it was issued.
State and local property taxes.
Deducting local and state property taxes on your federal tax return has been another primary tax break or benefit to owning a home. However, since 2018, the total deduction for your combined state and local income, sales and property taxes is capped at about $10,000. However, this is nothing to sneeze at.
Rental income.
Homeowners can harness the earning potential of their property by renting their property or space out to tenants or even vacationers. Rentals are at a 50 year high with 35.6% of the population renting rather than owning and you, as a homeowner, can cash in on that. Whether you’re simply renting out a basement or garage or maybe an over the attic apartment or renting out the entire home is a vacation rental, you can deduct the cost of repairs and improvements made to the rental space. If you own commercial or residential property as an investment rather than owner-occupied, repairs to these properties are also deductible but the laws are slightly separate from homeownership.
Home office expenses.
This can be a little bit tricky and can sometimes trigger a red flag when it comes to your tax returns. However, if you work exclusively from home you may be able to duck cost for space on your itemized tax return. These deductions are limited to self-employed workers and there are some strict requirements, but they shouldn’t deter you from doing a little research to find out if you can benefit from this tax break.
Capital gains from a home sale.
Selling your house gives the kind of tax break few people expect or even realize. The capital gains exclusion rule allows homeowners to keep the profit from a home sale without paying taxes on it. If you’ve lived in the property as your primary residency two years out of the last five years, you can make up to $250,000 profit as a single person or $500,000 as a married couple tax-free. However, most people sell their home to purchase another home and use the extra funds to pay off debt or add to the retirements. Either way, it’s a good break.
Related: Should we buy a house with friends?