There are many benefits to homeownership: you get to create memories in your own place while also nestling a financial investment and you get to cut down on your tax bill come April 15. While some tax benefits are obvious to some, there are many that are unknown.
Tax Write Off No. 1: Your Mortgage Interest
This is the biggest write-off, the ability to deduct the interest you paid in the last year. And the more recent the mortgage, the bigger the savings. Typically the first mortgage payments are almost all interest – that is why interest deduction is worth the most in those first couple of years.
Tax Write Off No. 2: Your Property Tax
Your property tax is generally deductible on your tax return, which can save you a hefty amount. You can also pay your property tax early and write off the entire expense, but make sure you record it in the same year as your tax return. For example, if you paid 2017’s property tax in 2016, make sure to claim it on your 2016 return.
Tax Write Off No. 3: Private Mortgage Insurance
If you put down less than 20 percent on your home, you are most likely paying private mortgage insurance (PMI). Most PMI is anywhere from 0.3 percent to 1.15 percent of the cost of your home. This deduction is due to expire this year unless congress renews it, so take advantage of it before it’s gone.
Tax Write Off No. 4: Energy Efficient Upgrades
The Renewable Energy Efficiency Property Credit allows you to claim a credit for up to 30% of the cost of equipment you purchased that uses renewable energy sources like solar panels. Other upgrades like new HVAC systems like energy-efficient windows can save you up to $500.
Tax Write Off No. 5: A Home Office
If you’re self-employed or work from home you can write off your office space and expenses. Typically you can receive a deduction of $5 per square foot up to 300 square feet. There are strict guidelines on what constitutes a home office so make sure to discuss this with your tax professional.
Tax Write Off No. 6: Home Improvements To Age In Place
Many older homeowners who plan to stay in their home may renovate to include wheelchair ramps or grab bars in showers. The cost of these improvements can be a nice tax deduction for you. These “age in place” renovations must cost more than 10 percent of your gross annual income in order to be deducted.
Tax Write Off No. 7: Interest on a Home Equity Line of Credit
If you tapped into your home equity line of credit, the interest you had to pay on the loan in also deductible if you’ve used the money for home repairs or upgrades. It would be best to speak with your tax professional to understand how much you’ll save due to it differing from situation to situation.