There is no doubt that homeownership is something we all dream of achieving. A place to call your own, that you can change to reflect your tastes, provides a great sense of achievement. It’s one of the best experiences that you will have as an adult.
With this exciting next stage in your life comes a whole new set of things to consider, especially come tax time.
Tax season is upon us. This can be a daunting time of year but it doesn’t need to be. There is still plenty of time to take advantage of the homeowner tax deduction perks. You can access these deductions to increase your tax refund or reduce the tax you may have to pay.
Let’s dive in and learn how you can reduce your taxes.
When Does A Homeowner Tax Refund Outweigh Standard Tax Deduction?
Homeowners now have access to ‘standard deduction for homeowners’. In the past, you would have only been able to access standard tax deduction options.
Claiming any homeowner tax deductions requires extra work compared to that of a standard deduction claim. You need to itemize every deduction when claiming the standard deduction for homeowners. And while this may take a long time to accomplish, these deductions can add up to thousands of dollars.
As long as your homeowner tax deductions are more than your standard tax deductions, it’s worth the time and effort to itemize your deductions. Just know that itemizing and claiming your homeowner tax deductions negates your ability to deduct any of the standard tax deductions you might have access to.
Standard Tax Deductions For The 2020 Tax Year
• $24,800 for married couples filing jointly
• $12,400 for single filers or married couples that are filing separately
• $18,650 for the head of the household
Itemizing Your Homeowner Tax Refund
Now that you’ve decided to claim the homeowner’s tax deduction, there are a few more steps to take. Ensure that you always keep good records. Save every receipt during the financial year. This makes the itemizing process a lot quicker, easier, and thorough.
By saving all receipts, bills, and any other paperwork that will support your tax claim, you can avoid scrambling if the IRS wishes to audit you.
Use an organized system that helps you keep track of everything. A simple spreadsheet is a good place to start.
Keep a digital scanned copy and hardcopy of all your receipts. This will make the whole process a lot less work when submitting your tax return. Especially if you are audited at any time.
For many homeowners, the best opportunity for homeowner tax deductions comes from the mortgage interest you’ve paid during the financial year.
You can claim tax deductions for mortgage interest paid on up to two residences. Your primary home being the first, the second can be for your vacation home. This can include boats and recreational vehicles, as long they have cooking, sleeping facilities, bathroom, and plumbing installed.
If you own more than two properties, it’s important to claim deductions on the two properties that give you the best deductions. While you may assume that the properties with the largest mortgage will yield the biggest deductions, that’s not always the case. It’s possible that the mortgages that you have had for the least amount of time will provide you with the most substantial deduction.
The reason for this is that the longer you have a mortgage the more your repayments are allocated to paying off the principle of the mortgage. This gives you a smaller amount from which to deduct tax when it comes to mortgage interest deductions. Pay close attention to this when itemizing your deductions.
Deductions on Property Taxes
When filing your federal tax return, the IRS allows you to claim property taxes that you have paid at both the state and local levels. These property taxes are being paid as part of each mortgage repayment you make and this total amount can be found on your yearly mortgage summary.
This is only an option if you are itemizing your household tax deductions and if you have owned the property for less than one financial year. Ensure that you only claim for property taxes you have paid and not the property taxes the previous owner paid.
Home Office Deductions
If you have a legitimate home office then you shouldn’t be afraid to include this in your homeowner tax refund. But be careful, people often view this deduction as an easy go-to item to claim each year.
Claiming the basement as a home office, throw in your internet costs and call it a day, right? Not so fast. Home office tax deductions are often immediate red flags to tax auditors. To avoid being audited ensure that you are honestly using the room or section of your home as a legitimate office.
In 2003, a much easier way to work out how much you can deduct for your home office was put in place by the IRS. You can claim $5 per square foot of the home office, where the largest space that you can claim is 300 square feet or $1,500.
Renting Out A Spare Room
As a homeowner, you may have rented out a room in your house for long periods. In recent years, homeowners have taken advantage of sites like Airbnb to rent out rooms on a short-term basis too. Both options are used to generate more income.
While income generated from renting out a room is a taxable income, there is also the opportunity to increase your homeowner tax refund by claiming on other items. These include internet, cable subscriptions, house and pool cleaning, and maintenance used as part of the rental. This can also include if you hire cleaners to clean after the room has been vacated.
Tax Deductions On The Sale Of Your House
If you sell your house and have lived on the premises for at least 2 years in the last 5 years, you can take advantage of tax savings deductions on the property.
You can claim tax deductions on costs associated with the sale of the property. These include advertising, title insurance, and even costs associated with repairs carried out within 90 days of the sale of the property. As long as these repairs were carried out to market your property, you can claim them.
If you make a profit from the sale of your property you can exclude $250,000 (or $500,000 for married couples) from being taxed on your tax return submission.
Tax Deductions For Moving Expenses
If you have sold your home and are relocating because you have a new job, then you can deduct costs associated with this move. It’s important to note that this new job cannot be close to the property you sold. And that you must work full-time hours for at least 39 weeks after you’ve moved.
Costs associated with storage (up to 30 days), accommodation for not you but all your family, and traveling to the new location, can be deducted. Also, if you have a pet, costs associated with relocating your pet can be deducted.
Contact A and N Mortgage For More Tips
When it comes to tax time, any relief you can get from paying taxes is a bonus. Using the tips outlined in this post, you’ll be able to take full advantage of the homeowner tax deductions available.
Start itemizing your receipts now. It can take a bit of time and you’ll likely find some items unaccounted for, which will send you on a bit of a scavenger hunt.
If you’re not sure how to complete your tax return, seek the services of a qualified professional. A qualified tax professional will be able to ensure you’re able to get the best tax relief available on your household tax refund.
For those currently in the process of buying a home, now is a good time to start collecting your receipts and setting up a system to keep track of everything. When tax time rolls around next year, you won’t be scrambling to find all the items you need for your tax return.
If you’re interested in buying or refinancing a house soon, please contact the professionals at A and N Mortgage. We’d love to help you turn your dreams and plans of buying or refinancing a home into reality!
A and N Mortgage Services Inc, a mortgage banker in Chicago, IL provides you with high-quality home loan programs, including FHA home loans, tailored to fit your unique situation with some of the most competitive rates in the nation. Whether you are a first-time homebuyer, relocating to a new job, or buying an investment property, our expert team will help you use your new mortgage as a smart financial tool.
A and N Mortgage Service, Inc. NMLS No. 19291 Neena Vlamis NMLS No. 37370