|Your home is a great
shelter from the rain and for taxable income. These tax
breaks are deductions and credits that are simple and easy to
without professional help but we advise talking to a tax professional
after you get the basics from our article.
Tax Deduction: reduces your taxable income by the amount of the deduction. This can move you into a lower tax bracket to save less than your variable tax rate times the amount of the deduction but a simple estimate of the amount saved on taxes is your incremental tax rate times the amount of the deduction.
Tax Credit: A one-for-one reduction in the amount ot tax you owe. Sometimes credits can exceed taxes due where the govermnent sends you money.
#1 Mortgage loan interest. Usually the biggest of all deductions for most Americans. Mortgage interest is deductible on a maximum of $1 million in mortgage debt secured by a first and second home. The $1 million level applies to married tax filers who file jointly and single taxpayers. Married taxpayers who file separately split the maximum 50-50.
#2 Energy tax credits: Tax credits of up to $500 are available for upgrading heating and air conditioning systems, insulation, windows, doors and thermostats, caulking, installing metal roofs and for otherwise putting the bite on energy waste. Qualified solar energy and fuel cell systems can net tax credits of up to $2,000. Related tax credits are also available for consumers who install clean-fuel vehicle-refueling equipment at their principal residence.
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#4 Interest Rate Points: These need to be amortized over the life of the loan but you can get a lump sum deduction if you refinance.
#5 Property Taxes are deductible.
#6 Capital Gains Exclusion: The taxpayer Relief Act of 1997 allows married taxpayers who file jointly to keep, tax free, up to $500,000 in profit on the sale of a home used as a principal residence for two of the prior five years. The home can be owned by either spouse. The amount is $250,000 for those filing single or separately. The exclusion is available as often as you qualify (one home every two years) on an unlimited number of homes.
#3 Home improvement loan interest. The interest on a home improvement loan is also deductible, but calculated differently. You can deduct all the interest on a home improvement loan, provided the work is a "capital improvement" rather than repairs, or maintenance. Capital improvements typically increase your home's value (say, because you added a room), prolong its life (a new roof) or adapt it to new uses (universal design improvements to assist older people or people with disabilities). You can get tax benefits from repair work (painting, repairing, etc.), but only when you sell your home. However, you could use a home equity loan to make repairs and deduct the interest - up to the available limits.
#7 Home-based business deduction. Those of us who work from our homes can deduct a percentage of certain home related costs from our income. If you use 15% of your home's square footage exclusively for business, then you can deduct 15% of the allowed expenses. You must recapture the depreciation deduction when you sell your home, but that will often be at the lower capital gains rate, rather than the higher "regular income" tax rate.
#8: Mortgage tax credit. Mortgage Credit Certificates (MCCs) allow qualifying low-income, first-time homebuyers to take a mortgage interest tax credit of up to 20 percent (the amount varies by local jurisdiction) of the mortgage interest payments made on a home. This credit is available every year you keep the qualifying loan and live in the house purchased with the certificate. To benefit, you must enter your local MCC program and adhere to its guidelines.
#9 Selling costs and capital improvements. You can reduce you taxable capital gains by the amount of your selling costs, which include title insurance, legal fees, real estate commissions, advertising and inspection fees. "Staging costs" from decorating or repairs - painting, wallpapering, planting flowers, maintenance etc.are considered selling costs if you complete them within 90 days of your sale, and complete them with the intention of making the home more salable.
The federal Mortgage Forgiveness Debt Relief Act of 2007 give s us the final two.
#10 Forgiveness of debt tax. In the past, if you walked awawy from a home mortage that was less then the foreclosing lender got for selling the house, then the differecne was considered taxable income to you. The new law allows certain taxpayers to exclude discharged debt from taxes, provided the lender discharges the debt in 2007, 2008 or 2009.
#11 PMI (Private Mortgage insurance.) is now deductible for those who qualify. Those qualified are families with an adjusted gross income of $100,000 or less. Families with incomes up to $109,000 are eligible for a partial deduction.
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