Own a home? Here are some tax benefits you might qualify for.
- Homeowners can capitalize on certain tax breaks that aren’t available to renters, such as home office and property tax deductions.
- To benefit from these tax breaks, you’ll generally need to itemize on your tax return.
Owning a home has certain benefits. For one thing, you get to build equity in an asset that can gain value over time. You may also be privy to certain tax breaks that aren’t applicable to renters. Here are five homeowner tax breaks it pays to know about.
1. The mortgage interest deduction
When you pay off your mortgage, a portion of each monthly payment you make goes toward your loan’s principal, while a portion goes toward interest. It’s the interest portion you’re eligible to deduct on your taxes.
If you signed your mortgage on Dec. 16, 2017 or later, you can deduct interest on up to $750,000 of mortgage debt. If your mortgage was signed prior to that, you can deduct interest on up to $1 million of mortgage debt.
The reason for this discrepancy is that the tax code underwent a major overhaul in 2017, known as the Tax Cuts and Jobs Act. Mortgages that were signed prior to the overhaul, however, were grandfathered into the old system where interest on mortgage debt of up to $1 million is eligible to be deducted.
You don’t have to worry about figuring out which portion of your monthly payments apply to mortgage interest versus principal. Your loan servicer will send you a tax form summarizing that information.
2. Property tax deductions
Property taxes are an unavoidable expense when you own a home. You can deduct up to $10,000 in property taxes each year, but that $10,000 limit also includes whatever state and local taxes you may be looking to deduct. If your property tax bill comes to $8,000 but you’re deducting $4,000 in state taxes, it means you can only deduct $6,000 of your property taxes.
3. The home office deduction
If you’re self-employed, you may be eligible to take a deduction for maintaining a home office. You can calculate your deduction in one of two ways. First, you can figure out what you spent on total housing expenses, from utilities to internet fees, and then take a deduction based on the percentage of your home your office takes up.</…….