Tax Breaks for Homeowners
By Vera Gibbons
With tax season rapidly approaching, it's time to get your paperwork in order and consider all the ways to minimize your tax liability. Whether you've got a single-family home, a town house, condo, or even a floating home, there are various home-related expenses that you should be sure to deduct. We suggest starting with these:
Mortgage interest: The mortgage interest deduction has long been the most-beloved tax benefit of homeowners since it's such a big money saver (especially in the early years of a home loan). In fact, Americans save around $100 million every year by claiming this deduction, which you can take on both your primary and secondary homes, providing your loan is less than a million dollars, and providing you itemize your return.
Mortgage points: The IRS sees points -- percentage-based fees which a lender charges to originate a loan -- as form of mortgage interest paid in advance. Assuming you meet certain requirements, you can therefore deduct these points, in full, in the year that they were paid. So, for example, if you paid two points on a $250,000 mortgage in 2013, you can write off $5,000 on your 2013 tax return. What if you refinanced a mortgage last year? Then, you would have to deduct the points over the life of the loan. That means you can deduct 1/30th of the points a year if it's a 30-year mortgage. Granted, that's only $33 a year for each $1,000 of points you paid, but every little bit helps.
Property taxes: Once you see what you, (or the holder of your escrow account), paid in property taxes in 2013 -- (find that number by looking at the annual statement you recently received from your lender; or if your taxes aren't included in escrow payments made with your mortgage payments, then look at your cancelled checks) -- enter that amount on your Federal form. Property taxes must be taken as an itemized expense. The tax you pay -- each year -- is deductible, for as long as you own the home. See Schedule A, line 6.
Home improvements: In what may be considered a sign of market confidence about the long-term prospects for the recovery, homeowners took on all sorts of remodeling projects last year. Chances are, you did, too. Whether you added square footage, put on a new roof, or made other "capital improvements" to your home, know that the money you spent on these projects -- which increase your home's value (as opposed to non-eligible repairs which just return something to its original condition) -- can help lower your tax bill when you sell your home. Try using a free tool like Zillow Digs to get a sense for how much a remodeling project will run you and whether it will be a good return on your investment.
And as always, save your receipts!
More about homeowning:
How Much Home Can You Afford?
How to Find Home Buying Credits
Key Factors in Securing a Mortgage
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Vera Gibbons is a financial journalist based in New York City and is a contributor to Zillow Blog. Connect with her at http://veragibbons.com/. Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.