Home Tax Deduction
First Time Homebuyer Tax Credit
Did you buy a home in 2009? If you have not owned a home for the previous 3
years, you may be eligible for the
First Time Homebuyer Tax Credit, which is a fully-refundable credit
of up to $8,000. If you have previously owned a home for at least 5 consecutive
years (in the 8-year period prior to your new purchase) you may qualify for a
New Homebuyer Credit of up to $6,500.
Home Ownership Expenses and Deductions
Home Related Deductions
The list provided here is intended for a high level overview and understanding.
Everything stated here might have exceptions. During the tax interview on eFile
you will be prompted to enter the necessary information. Please reference Publication 530
and
Publication 587 for more detail on what you can deduct and what you cannot
deduct.
Deductions related to the common costs of purchasing a home:
- Home Mortgage Interest
- Real Estate Taxes
- Mortgage Insurance Premium
- Points (charges paid by the borrower to obtain mortgage).
You can claim a deduction on the points you pay when taking out an original home
loan, whether the points are paid by you or the seller. Each point is equal to one
percentage point of the loan amount. Additionally, you may deduct the mortgage interest
and property tax paid for that particular year. You should always keep all records,
such as the settlement statement from the title company. Settlement costs, which
are also referred to as closing or escrow costs, may include any transfer, recording
and title fees, but are not deductible in the current tax year.
Some home related expenses that cannot be deducted:
- Fire or homeowner insurance
- Amount to reduce principal mortgage.
Home Improvements
Some types of home improvements can potentially lower your tax obligation when you
sell your home. Such expenses may include replacing a roof or adding an extension,
which increases the usefulness and value of your home. These types of expenses/deductions
cannot be used until you sell your home. However, all records should be kept for
future use, since any home improvement costs can add up over the years. Be mindful
that any normal repair or maintenance on your home is not tax deductible.
Additonal Home Tax Deductions:
Mortgage insurance premiums: you might be qualified to take an
itemized deduction on the insurance premium paid.
Note: certain itemized deductions (including taxes and home mortgage
interest) are limited if your adjusted gross income is more than $156,400 if you
are married filing jointly ($78,200 if you are married filing separately).
Refinancing a House: Numerous homeowners have built substantial
equity in their home, which they then use to capitalize on a home equity loan. This
is also called a second mortgage because the loan sits right behind the first mortgage
(original mortgage for your home). 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. Of particular interest, 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: 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”. Losses not considered
accidental include losses as a result of termite damage and pipe corrosion. Any
accidental losses must exceed 10% of your adjusted gross income to be considered
a tax deductible expense.
Home Offices. In 1999, tax breaks were expanded for the business
use of a home. Homeowners can 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.
See
Publication 587 for more detailed information.
Ongoing Tax Breaks. 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/Vacation Homes. 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. When such income property
is sold, the seller will either have to pay the capital gains tax or conduct a tax-deferred
exchange for other income-producing real estate of equal or greater value. For income
property, mortgage interest, property taxes, and other expenses must be deducted
against any income produced by the 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. It also applies to those employees who work from home at least
75 percent (39 weeks) of the next year at or near the new job site. A self-employed
worker must work at least 75 percent (78 weeks) of the next two years at or near
the new job site.
Home related energy savings tax deductions
Additional information about home related deductions