I've been gathering my receipts and listing various expenses to make life a little bit easier on my accountant (and make my accountant go a little easier on my wallet). After getting all of my information together, I started thinking about the numerous deductions I'll have on my taxes again this year because I am a homeowner. Then I thought about how great of an opportunity this is to spread the word about the tax saving benefits of homeownership to all of those renters out there, and now we have today's blog post.
Here's a quick list of some of the deductions that I'm taking, as well as some deductions that are allowed with our current tax code.
1. Home Mortgage Interest Deduction – This deduction is the most popular and widely utilized deduction of all of them. This one allows you to deduct the mortgage interest that you've paid on your primary and secondary residences from your gross income, effectively reducing the taxable income you report to Uncle Sam. There is a limitation of one million dollars in mortgage debt to this deduction – so if you owe more than one million dollars in mortgages on your primary and secondary residences, you will only be able to deduct the interest paid on a million dollars of those mortgages.
2. Property Tax Deduction – This one is just as popular as the first one. This code allows you to deduct the state and local property taxes that you pay on your home from your federal income tax.
3. The $250,000/$500,000 Sale Exclusion – If you sell your home and you've lived in the home for at least 2 of the last 5 years, then you will not have to pay income tax on the majority of the profit you make from that sale. The exclusions are $250,000 for single filers and $500,000 for married filers.
4. Certain Home Buying Expenses – There are certain expenses that you pay when purchasing a home that are deductible from your gross income. Origination fees, tax stamps, prepaid mortgage interest, prorated property taxes, etc can all be deductible.
5. Certain Home Repairs or Upgrades – Right now, the federal government and certain state governments are allowing homeowners who upgrade appliances, windows, and certain fixtures to deduct a portion, or all, of the costs of those upgrades from their gross income. You will definitely want to check the tax regs or ask your accountant about this one.
6. Rental Income – A little known deduction for those who rent out their homes for 14 days or less each year allows you to pay no tax on that rental income. Many websites have emerged lately for people who will swap homes in vacation or resort areas for short periods of time. In other words, if I wanted to vacation in Orlando in June this year, and someone in Orlando needed to stay in Birmingham in June this year, we would simply swap homes during this time period. This is becoming more popular now that there are platforms for people to list the home to be swapped. If you do this for 2 weeks, you don't have to worry with claiming this as income on your tax returns.
As always, you should consult with your tax adviser before claiming any deduction on your tax returns, but the guide above should give you some good points to ask questions about during your appointment with your accountant this year.