Many homeowners have a general understanding of the home-related tax breaks that apply to them. Here are a few lesser-known areas where you may qualify for a credit or deduction.
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Did you buy a house last year? Then you likely know that you can deduct the points you paid to get your mortgage — in one fell swoop.
If you refinanced, however, you can’t do that. Rather, you have to deduct the points on the new loan over the life of the loan. For a 30-year mortgage, you can only deduct 1/30th of the points per year. If you had $3,000 in points, divide by 30 to deduct a paltry $100 in points each year. Every little bit helps, though.
Home energy credits
The tax credit that encouraged homeowners to save energy by installing insulation, storm windows, doors, roofs, and certain water heaters and qualified heating and air conditioning systems disappeared at the end of 2013. But there is one energy tax credit available for tax year 2014: the Residential Energy Efficient Property Credit.
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If you installed items like a solar hot water heater, geothermal heat pump, or wind turbine, your credit could be worth up to 30 percent of the total cost. This credit is slated to stick around until 2016.
Premiums for PMI
If you’ve been paying for private mortgage insurance (PMI) every month because you put down less than 20 percent on your home, you may be able to recoup some of that money by claiming the PMI deduction on your federal return.
Keep in mind that the deduction, which is only for policies issued after 2006, expires with tax year 2014 unless Congress renews it. And the right to this deduction (which many homeowners don’t claim) disappears as your adjusted gross income rises from $100,000 to $109,000 (or $50,000 to $54,500 for those who use married filing separately status).
Simplified home office deduction
If you’re like most people who work at home, you probably don’t bother deducting your home office expenses because a) the rules are complex and b) you’re worried it will increase your chances of getting audited.
But have you heard about the simplified calculation method allowed by the IRS? Probably not — although the deduction made its first appearance in 2013. Just multiply the square footage of the part of the home used for your home office (up to a maximum of 300 square feet) by $5 a square foot. The maximum deduction is $1,500. It’s an easy, time-saving calculation, and it certainly beats figuring out your own expenses and pro-rating them (although that’s still an option if you prefer).
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