Be sure to take these 6 common deductions on your home.
I can’t believe it’s March already and just six weeks until Tax Day. That’s good news for first-time Denver homebuyers or existing homeowners like you who may qualify for tax deductions, which reduce your taxable income, relating to your dream home.
Here are some of the most common deductions you can itemize when you do your taxes:
Tax Write-Off 1: Mortgage Interest. As a homeowner, you can deduct the interest you pay over the course of the year on your mortgage. This deduction is limited to interest paid up to $1 million on your home’s purchase price. The newer the home, the higher the deduction you get because interest decreases each year you pay on your mortgage. You can also deduce interest paid on up to $100,000 in home equity debt.
Tax Write-Off 2: Property Taxes. You can also deduct the amount you pay in property taxes each year—whether it’s collected monthly and paid once a year through your escrow account or it’s paid in one lump sum from your personal account. If you pay the taxes via escrow, you’ll find the amount paid on the tax statement from your mortgage provider. For new homeowners, you may need to check your settlement sheet to find the amount you paid in property taxes as part of your closing.
Tax Write-Off 3: Private Mortgage Insurance (PMI). You can deduct the amount you pay for private mortgage insurance or PMI as part of your monthly mortgage payments. You’re probably paying PMI if you put down less than 20% down on your home. PMI can range from 0.3 to 1.15% of your home loan. Be sure to take advantage of this deduction this year, because it expired at the end of 2016.
Tax Write-Off 4: Points Paid on Your Mortgage. If you paid points to reduce your monthly mortgage payments, you can deduct that amount on your taxes. Points for new home loans must be paid in the year you pay them, while points on a refinanced loan are deducted over the life of the loan. You can also deduct points paid for home equity loans and lines of credit in the year you pay them.
Tax Write-Off 5: Energy-Efficiency Upgrades. Adding solar panels or wind turbines—or any other equipment that allows you to use renewable energy sources in your home—will allow you to deduct up to 30% of the cost of the equipment on your taxes for 2016. You can also receive a $300 tax credit, which reduces your tax bill, for upgrading to more energy-efficient HVAC systems, energy-efficient windows and storm doors. This credit expired at the end of 2016 while deductions for solar panels are still available through 2019.
Tax Write-Off 6: Sales tax. When you buy a home, you may want to think about writing off the sales tax on big purchases, like new furniture and appliances, or for major home renovations. You’ll want to compare these deductions vs. the standard sales tax write-off to determine which one gives you more in tax savings.
Bonus Tax Write-Off: Home Office. This one’s only for homeowners who have a dedicated space in your home for your office. You can deduct your office space and expenses for running your business on your taxes this year. There’s no limit on how small or large the space can be, but you do have to follow to determine if your space is eligible for deductions. Your accountant can lead you through it.
If this is your first year with deductions on your home, you may want to consult with a tax professional. Contact Redhead Properties at 303-912-1478 or firstname.lastname@example.org, and we can refer you to a provider you can trust.