Are you prepared for your tax filing? Tax season is at your door steps - don’t forget the last date of your tax filing. Yes..it’s on April 18th. You probably have started filling out your tax forms, but if you are a homeowner, you may have questions regarding how to properly file your taxes.
Being a homeowner you’ll find many tax benefits, but some homeowners hesitate to take the full advantage of them.
Research shows that only 1/3 of total homeowners who pay taxes, itemize the deductions. So, we can probably think that most of them are still unaware of the benefits of it.
So, let’s just explain it a bit.
What do you mean by the mortgage interest deduction?
Homeowners have the option to include the mortgage interest they pay for home loans in their itemized deductions. There are two separate categories where homeowners can deduct mortgage interest.
No.1 is the home acquisition debt. It has the limit on deductible interest on those mortgage debts which cost $1 million or more. Home acquisition debt also considers other loans like loan taken for buying, building, or improving your main home or a second home.
No.2 is multiple mortgages that have the principal balance less than the $1 million limit, or $500,000 for married taxpayers.
What amount will be counted as mortgage interest?
The part of your monthly mortgage payment, apart from the principal, will be counted as mortgage interest.
What are deductions that homeowners often skip by mistake?
In the 2016 tax year, mortgage insurance premiums were calculated in itemized deductions along with mortgage interest and real estate tax.
As mentioned earlier, only 1/3 homeowner taxpayers go for itemized deductions. But millions of taxpayers should also go for that benefit.
Why? Let’s have a look:
Itemizing allows taxpayers to deduct:
- Personal property taxes
- Real estate property taxes
- Charitable donations
- State income or sales taxes
- Miscellaneous expenses such as employee business expenses
- Medical expenses more than 10% of AGI* (7.5% of AGI if taxpayer or spouse is 65 or older)
- Casualty losses
* Adjusted gross income
It is for sure that tax credits and deduction claims may reduce the pressure of your income tax bill or increase the amount of your tax refund check. But you must also understand that all tax breaks aren’t going to last forever.
A few good tax benefits were going to expire at the end of 2016 because Congress considered letting them to the trash can.
Here are the names of the tax breaks that going to be archived for tax year 2017.
1. Mortgage insurance premium deduction
If you gave downpayment less than 20% at the time of owning the house, you might have also paid the private mortgage insurance (PMI). In 2016 tax year, the premiums for PMI were 100% tax deductible for households with an AGI of $100,000 or less.
Now this tax break has been expired, and homeowners might miss out a good amount worth several hundred dollars from the deduction.
2. Exclusion for cancelled mortgage
The Mortgage Forgiveness Debt Relief Act was passed in 2007 to help underwater homeowners. In most of the cases, the homeowners lost their homes because of foreclosure or short sale. In the past few years, the act has been extended till tax year 2016 and allowed the exclusion of forgiven mortgage debt from income. But the act wasn’t renewed for the tax year 2017 before Congress adjourned for 2016.
3. Energy-saving home improvement
Installing eco-friendly improvements to your home may reduce your utility bill and your tax bill at the same time. But few of the energy-efficient tax credits might be expired at the end of 2016.
Starting from the tax year 2017, you can’t deduct 10% tax credit from your tax bill for installing qualified energy-efficient improvements. Before the credit expired, it had a lifetime limit of $500. Also you won’t get a 30% tax credit for installing fuel cells in your home.
Even some of the major tax breaks have expired, Congress could vote to extend the benefits for common taxpayers. If they do that, you can claim the benefits on your 2017 tax return.
In the meantime, try to find out whether or not you can get more advantage of any other tax credits or deductions if you are filing your taxes now.