Owning a home is a significant financial commitment, but it also comes with potential tax benefits. While the tax code can be complex, understanding these deductions can help you maximize your savings. Let’s explore the top 5 tax deductions to claim on your home.
- Mortgage InterestOne of the most well-known deductions for homeowners is mortgage interest. This refers to the portion of your monthly mortgage payment that goes towards interest rather than principal. While the Tax Cuts and Jobs Act placed limitations on the deductibility of state and local taxes (including property taxes), the mortgage interest deduction remains intact.
- Property TaxesProperty taxes are generally fully deductible on your federal income tax return. This includes taxes paid on your primary residence and any additional properties you own. However, as mentioned, there are limitations on the total amount of state and local taxes you can deduct.
- Mortgage PointsMortgage points, also known as prepaid interest, are fees paid to a lender to lower your interest rate. While you don’t deduct points in the year you pay them, you can generally deduct them over the life of the loan. This can be a significant benefit if you plan to stay in your home for an extended period.
- Home Equity Loan InterestIf you tap into your home’s equity with a home equity loan or line of credit, you may be able to deduct the interest paid on the loan. However, there are limitations. The funds must be used for home improvements or to buy your primary residence. Additionally, the total amount of interest you can deduct is subject to certain caps.
- Residential Energy CreditsThe federal government often offers tax credits for homeowners who make energy-efficient improvements to their homes. These credits can vary depending on the type of improvement and the year it was completed. Examples include credits for solar panels, wind turbines, and energy-efficient home improvements. Be sure to check the current tax year’s guidelines for specific details.
Important Considerations
Here are some important considerations:
- Itemized Deductions: To claim these deductions, you must itemize your deductions on your tax return rather than taking the standard deduction.
- Tax Reform Impact: The Tax Cuts and Jobs Act introduced changes that may affect your ability to claim certain deductions. It’s essential to stay informed about these changes.
- Consult a Tax Professional: Tax laws can be complex, and it’s advisable to consult with a tax professional to ensure you’re maximizing your deductions and complying with all regulations.
- Documentation: Keep accurate records of all expenses related to your home to support your deductions.
Brighton Escrow: Your Partner in Navigating Complexities
By understanding these tax deductions and working with a qualified tax professional, homeowners can potentially save a significant amount of money on their taxes. Brighton Escrow is committed to providing valuable information to our clients. Contact us today to learn more. Call us at (310) 545-8484 to learn more.
