Owning a home is very costly. You need to arrange the money required to make this big purchase as well as should make provision to make timely repayments. You also need to ensure that you take advantage of all the positive aspects of owning a home. Here, it is to be noted that home ownership has some positive tax implications. You should not forget to deduct the tax deductible items while claiming tax returns as a homeowner. There are some tax breaks available for the existing homeowners. You should not commit the mistakes of not including those items while filing your returns. These breaks are applicable for any type of residence – single-family home, town house, mobile home, cooperative apartment or condominium. Here we discuss about some items that you should not forget to include while filing returns.
1. Home mortgage Interest
If you take out a home loan, you are required to make monthly mortgage payments. The amount that you pay as monthly mortgage interest is tax deductible. If the amount of home loan that you have taken out is less than $1 million, the entire interest amount that you pay is deductible. However, if you have taken out a loan which is more than $1 million to buy a home, then the entire interest amount is not tax deductible. Some limitations on deductions have been imposed by the Internal Revenue Service (IRS).
These tax deductions on interest payments are applicable not only for the first mortgage but also to the second mortgage, refinancing loan or for home equity loan.
2. Mortgage points
Mortgage points are a type of prepaid interest which helps you lower down the rate on the mortgage loan. Each point is equivalent to 1% of the loan amount. The higher the point you pay, the lower becomes the rate on the loan. The points that you pay are tax-deductible. You have to however itemize the deductions. However, you need to fulfill some criteria to itemize deductions.
3. Home sale cost
Most of the expenses that you incur while purchasing a home are not tax-deductible items. Some items of the closing costs enjoy the benefits. However, few expenses that you incur while purchasing or selling a house enjoy the tax benefits. However, you need to talk with the tax consultant on how to include these items in filing returns.
4. Breaks on energy credits
In recent times, the government is putting in due attention in energy efficiency aspects. Credits are given to the households for making energy efficient changes in the home. The energy credits that you receive are tax deductible.
5. Breaks for property taxes
The annual property taxes that you are paying are also tax-deductible. To avail the benefit, you have to however obtain the annual statement from the institution which is holding your mortgage.
Before filing your returns, you should consult a tax consultant so as to get to know what home-related expenses should be considered as tax-deductible