Monday, January 26, 2009

Top 10 Deductions and Credits for Homeowners

From an outsider’s perspective, owning a home may look like it comes with all kinds of expenses. But when you look at all the tax incentives homeownership has to offer, you may see things differently. To help my readers understand the true value of their homes, I have put together the following list of the top 10 deductions and credits for homeowners.

1. Local Real Estate Taxes

Every homeowner pays an annual real estate tax on his or her home based on its value. However, what every homeowner does not know is that this tax is fully deductible. The federal government allows you to deduct the amount you spent on local taxes—this includes local property taxes.

2. Moving for Career

New homeowners who have recently moved to a new area for work purposes are allowed to write off their moving costs. As long as the new job meets certain distance requirements, you can write off moving costs, motor vehicles, household goods, and any other moving associated goods. A few other restrictions do apply, so be sure to check any large moving deductions by a tax professional first.

3. Casualty Losses

If a fire or storm damaged or destroyed your home, you may be able to deduct the associated expenses as casualty losses. However, there are a lot of rules and restrictions, and the actual amount you can deduct will vary upon your location and the amount of damage.

4. Home Office

If you work from home then you may be able to deduct your home office expenses. However, this deduction is a little tricky, and the office needs to have it’s own room in your house.

5. Health-Related Improvements

Home renovations or other home expenses made for medical reasons can be deducted. This includes any expenses made specifically for an ill or disabled person living in the home. Some common examples of this deduction include handicap ramps, special air filters or air conditioners, and swimming pools to help treat illnesses.

6. Mortgage Interest

The IRS allows you can deduct all of the interest you pay on your mortgage for both your first and second home, up to $1.1 million. In fact, the mortgage interest deduction is the largest single tax break in the tax code.

7. Paid Refinanced Loan Points

Refinancing can be a pain, but it does come with its advantages. If you recently refinanced, then you can deduct points you paid for the new loan. However, you cannot deduct all points at one time. You must divide them evenly throughout your loan. For example, if your loan was for 20 years and you have 40 points, you can deduct 2 points a year.

8. Green Credit

There are dozens of credits available for "green" renovations. These credits range from getting solar panels to purchasing more energy efficient kitchen appliances. These types of credits are great to take advantage of because they help you save both money and the planet at the same time!

9. Selling Costs

In addition to deductions and credits for owning a home, there are also benefits if you decide to sell your home. Legal fees, advertising expenses, real estate agent’s commission, title insurance, and any other expenses associated with selling your home are deductible. The IRS will even let you include things like landscaping and painting in your selling costs if you complete them with the intention of making the home more saleable.

10. Vacation Home Incentives

Many homeowners are unfortunately under the misconception that you can only receive tax breaks for one home. However, you can deduct real estate taxes, mortgage interest and points, and personal property taxes spent on a vacation home.

No matter what deductions you consider, always check with an expert before sending in your tax forms. There is nothing worse than thinking you are receiving a huge refund, only to get an audit in the mail instead!

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