You’ll find that many homeowner deductions and credits are unrelated to your mortgage. These can also be significant and reduce your overall cost of homeownership.
Here are a few of the more common ones:
Municipalities, school districts and other local authorities all levy taxes on the assessed value of your property. Most mortgage lenders may escrow these amounts in your monthly mortgage payment. The actual taxes paid will be listed on your annual 1098 form. You can deduct these taxes as long as they are not in exchange for a specific service, like trash collection. Note that new tax laws affecting your 2018 return will limit these deductions to $10,000.
Do not deduct payments into your escrow accounts as property taxes. These monthly deposits are simply money put aside to cover periodic tax payments. Deduct only the actual property tax payments made from the account by your lender during the year.
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Expenditures that improve the energy efficiency of your home may qualify for tax credits. A tax credit is even better than a deduction, because they are dollar-for-dollar savings, instead of simply saving you whatever tax you paid based on your income bracket.
These credits can be claimed for improvements like a new energy efficient furnace, upgraded insulation, new thermal windows, doors or a replacement roof.
Here’s something that may save tax dollars when you sell your home. Keep receipts and records for all improvements you make, such as landscaping, storm windows and fencing. Although you can’t deduct these expenses now, the record keeping may pay off later. Here’s how: when you sell your home the cost of the improvements is added to the purchase price of your home to determine its cost basis. This will reduce any potential taxable gain that you may have from the eventual sale of your home.
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If you suffered property damage and weren’t reimbursed by an insurance company for repairs, you may be eligible for a big deduction. Whether it’s a flooding or a fallen tree or even vandalism, sometimes damage to your home can cost you thousands of dollars out-of-pocket. Your casualty loss deduction must exceed 10% of your adjusted gross income, so it may not be worth your time to write off small-time repairs. But if you incur significant expenses repairing your home after an unfortunate event, document everything and tap into this tax break to ease some of the pain. Note that new tax laws affecting your 2018 return will only allow deductions for casualty losses in federally-declared disaster areas.
If you are thinking about homeownership, we are happy to go over mortgage options that will help you achieve your goals. Contact us today!
This article is intended for informational purposes only. Opes Advisors, a division of Flagstar Bank, always advises its customers to consult with their accountant for confirmation on possible deductions. Opes Advisors, A Division of Flagstar Bank, is neither a law firm nor a certified public accounting firm and does not provide legal or tax advice. Consult your accountant or tax advisor for advice specific to your situation.
Information is accurate on the date of publication. Please check with a Mortgage Advisor and consult with your tax advisor for current information related to your specific situation.
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