It’s April! Along with all of the wonderful things that come along with this season of renewal comes the dreaded Tax Deadline. Keep in mind, though, that as a homeowner you are granted lots of deductions that renters are not privy to. Make sure that you are taking full advantage of all of those deductions. Here are a few reminders to help you as you put the finishing touches on your taxes for the April 15th deadline:
Deductible Home Expenses:
- Refinancing a House: Numerous homeowners build substantial equity from their home and use it to take out a second mortgage (also called a home equity loan). Homeowners can either take the cash in a lump sum or get a home equity line of credit, which is similar to having a low-rate credit card with the added benefit of being tax-deductible. If all or some of the new home equity loan is used for home improvements, then all or some portion of the points can be deducted in the current tax year.
- Accidental Loss: It was a year of hurricanes, winter storms and floods so this one is particularly relevant this year. Uninsured losses from fires, floods, earthquakes, storm damage, and theft are current expense deductions. Any accidental, or casualty, losses must be “sudden, unexpected and unusual”. Any accidental losses must exceed 10% of your adjusted gross income to be considered a tax deductible expense.
- Home Offices: Those who work from home may be able to deduct a portion of their utilities, home insurance, property taxes, mortgage interest, and home repairs as business expenses. Homeowners who work at home can even claim a tax break for depreciation on the business portion of their home. The business portion of the home must be used “regularly and exclusively” for business, and must be either a principal place of business; a place where the homeowner meets patients, clients or customers; or a separate unattached structure. The homeowner can even be an employee and qualify for the tax breaks.
- Mortgage Interest Deduction: The annual mortgage interest you pay on your home mortgage loan is the most significant deduction available for homeowners and saves homeowners tens of billions of dollars every year. Homeowners can also deduct their annual property taxes expense and some types of annual assessments levied by local districts.
- Second Home/Vacation Home The rules on second homes and vacation homes are complicated. Make it easy on yourself and keep really good records. Homeowners can deduct mortgage interest and property taxes from second homes and vacation homes as long as the properties are rented for 14 days or less per year. If any rental exceeds the 14-day limit per year, the IRS considers this as an income property.
- Moving Costs: Homeowners who move to a new job location that is 50 miles or more from their previous living situation, may qualify for a residential moving cost deduction. This rule applies to the self-employed as well as to regular company employees.
Additional information about home related tax deductions may be found in IRS Publication 530-Tax Information for Homeowners. It is always a great idea, especially this year with the tax reform bill, to get the input and advice of a tax pro.