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6 Tax Breaks for Homeowners

6 Tax Breaks for Homeowners

Tis the season for… tax preparation. Not excited? If you’re a homeowner, we’ve got a few reasons why you should be! From selling a home, paying interest on a mortgage, making a home improvement or simply working from home, we’ve found six tax breaks that many homeowners may qualify for this year.
1. Paid Mortgage Interest
For most homeowners, the bulk of their monthly mortgage payment goes towards interest. As unsettling as that may be, paying a large amount of interest is actually beneficial for your annual tax return. As long as your loan is under $1 million, all of the interest you paid last year is deductible.

For those homeowners who have multiple homes, the second home mortgage interest is also deductible – this doesn’t just include traditional homes, it can also be applied towards boats and RVs, as long as they are “livable,” meaning they include cooking, sleeping and bathroom facilities.

2. Prepaid Interest or “Points”
Did you prepay interest (or “points”) when you took out your mortgage? If so, that amount is 100% deductable in the year you paid it. If you paid points when you refinanced or took out a home equity loan and you used that money to make home improvements, those points paid are also deductible.

3. Home Improvement Loan Interest
In addition to points paid, the interest you’ve paid on a loan taken out to make improvements that will increase your home’s value is deductable. However, for this loan to qualify, you must have used it to make “capitol improvements.” Cosmetic improvements, such as paint, countertops or carpeting, do not qualify. Only major projects that will add value to your home, such as a new heating system, garage or deck, are considered deductable capitol improvements.

4. Energy Tax
Remember the energy tax credit in 2011? It’s back! The government decided to extend part of the energy tax credit program for 2012 and 2013. That means, if you updated the following systems last year, you will get a $500 credit.

Qualifying systems include:
• Biomass Stoves
• Heating, Ventilation and Air Conditioning
• Insulation
• Roofs (Metal or Asphalt)
• Water Heaters (Non-solar)
• Windows, Doors and Skylights
• Storm Windows and Doors

5. Vacation Home
Did you know that you can deduct your vacation home, even if you rent it out for part of the year? This can be a little tricky though – so be sure you have solid documentation of how much you actually used your vacation home last year. If you didn’t rent your home out for more than 10 days, you should have no problem deducting your mortage interest and real estate tax on Schedule A. However, if you rented your home out for more than 14 days, you must have “lived” there for over 10% of days it was rented out.

6. Home Office
If you use a portion of your home as a home office, you may be able to claim insurance, repairs or depreciation. This area in your home is only deducable if it is used solely for business or as a place where you meet with clients. In addition, if you regularly use a part of your home to store business-related items, such as business supplies or product samples, you can also claim that as a deducation.

If you believe you qualify for any of the tax breaks we mentioned above, we highly recommend that you meet with a tax professional go over your specific situation. Filing tax exemptions can often be complex, so letting a specialist take a look will help ensure that your tax return is compliant with IRS regulations. Additionally, your tax professional may even find more tax breaks you qualify for.

Also, be sure to keep good record of your home expense and paid interest this year, so you can use it to your advantage next tax season.