The vast world of deductions can have even the most financially astute among us scratching our heads come tax time. But when it comes to home ownership, you’ll be saving major, major buckage if you know what you’re eligible for. We checked in with Lisa Greene-Lewis, CPA and TurboTax Tax Expert, for all the key places you should be leveraging Uncle Sam’s generosity on the home front.
9 Tax Deductions Every Homeowner Should Know About
The biggie: You can deduct the amount of interest paid on your mortgage. If you purchased your home last year, you should be receiving a document called Form 1098 from your lender that includes the amount of interest paid, as well as the points you paid, so that you can maximize your deductions for a bigger refund.
Here’s hoping you don’t actually claim this one, which has to be the result of a sudden, unexpected or unusual event (like property damage as a result of last year’s horrible hurricane season, for example). If your losses total more than 10 percent of your income, you can deduct whatever your insurance doesn’t cover.
If you’ve made any solar improvements lately (see: energy panels), you’re eligible for a credit of 30 percent of the total cost, including installation, with no set limit. Note that the residential energy efficient property credit will drop over the years under the new tax code, so don’t wait too long if you’re noodling on the prospect. (The credit decreases to 26 percent for tax year 2020; 22 percent for tax year 2021, then expires December 31, 2021.)
Buy an old fixer-upper? You might be eligible for a deduction. While the historical preservation credit mostly applies exclusively to "income producing" properties (like commercial buildings), certain states have historic preservation tax credits for owner-occupied homes. In order to qualify for them, your house has to be listed on the National Register of Historic Places, and any work done must be reviewed to ensure it meets preservation requirements.
Rental Expenses on a Secondary Home
Unlike your primary residence (which does not count a rental as taxable income), if you rent out your second home for more than two weeks a year, you have to report it on your return. However, you can get tax breaks in the form of maintenance costs related to rental expenses: meaning stuff like supplies, repairs and furniture.
Capital Gains Exclusion
The majority of taxpayers don’t need to pay taxes on their home's sale profit, thanks to this guy. The gist: If you owned and lived in your main home for two out of five years before its sale, you can make up to $250,000 profit when selling and not have to claim it on your taxes. As a married couple, you may be able to exclude up to $500,000 profit. On the other hand, if you pocketed more than $250,000 (on your own) or $500,000 (as a couple), you will be taxed.
If you legitimately use your home office full-time (“regularly and exclusively,” per the IRS’s guidelines), you can take the home office deduction for a percentage of your mortgage interest, insurance and maintenance—which is based on the percentage of your square footage used for your business.
Reminder: If you itemize your deductions, you can write off the full amount of your home's property taxes. But heads up: Starting next year this deduction will be limited to $10,000 total (per the new tax code).
Did you buy your new home because of a job? If you meet the criteria (aka you work full-time for at least 39 weeks within the first 12 months after your move, and your new gig is at least 50 miles farther away from your old home than your old place of employment), you can claim your moving costs—everything from movers to storage boxes.