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Owning a home offers many benefits, such as stability and the opportunity to remodel the home as you'd like. Ownership can be costly, though, such as when the hot water heater breaks or you need a new roof or the bill for your home insurance arrives. Fortunately, homeownership also offers some tax breaks that may save you a lot of money. Let's dive into a few.
: Let's start with the deduction for mortgage interest paid. Amortization schedules are designed to have you paying much of your home-loan interest toward the beginning of your mortgage. That's why it's worth investigating the mortgage interest deduction immediately after buying your house.
The way it works is pretty simple: You are allowed to file an itemized deduction with the Internal Revenue Service and deduct the amount of interest you pay on your mortgage. This applies to up to $1 million of mortgages for married couples. The deduction begins to phase out if you and your spouse bring in more than $300,000 per year. If you pay $6,000 in mortgage interest in a tax year and you're in the 25% tax bracket, you're looking at a tax break potentially worth $1,500.
But here's the thing: It doesn't make sense for most people to take this deduction. By doing so, married couples forgo the standard deduction -- which in 2016 is set at $12,600. In effect, the interest you pay -- plus any other itemized deductions -- need to exceed this threshold for the mortgage interest deduction to actually help you.
That's why, while it's nice to know that you have the option to deduct such interest, itsnevera good justification for purchasing a house as an "investment." (Yes, your home may appreciate in value over time, but that's not guaranteed, either.)
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: One can't-miss tax break that homeowners will want to take advantage of is the ability to deduct property tax. If you paid property taxes to your state or local government at any point during the calendar year, you may qualify for the deduction.
However, like many tax breaks related to the home, this deductions is only useful to homeowners who itemize their deductions. As Brian pointed out above, if your total deductible expenses fall short of thestandard deductionamount, then you're better off ignoring this tax break and just simply using the standard deduction.
Note, too, that the amount you can deduct is based on when the taxes are paid to your local government, not simply on their due date. That affords some savvy homeowners the chance to amp up their deduction bypaying their property taxes a bit earlier than they have to (such as in December of one year instead of January of the next), allowing them to claim greater expenses on their home. Doing so might be a smart move for some homeowners, especially if it would push them over the standard deduction amount and allow them to itemize.
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Selena Maranjian: If you own a home, there's a big category of tax deduction that you may be able to take advantage of: the home office deduction. Of course, you need to qualify by having a space in your home that's dedicated solely to your business. You can't just use a corner of the family den. The space must also be your principal place of business or where you meet regularly with customers. If you're a salaried worker and your home office is where you spend a few hours per week working from home, that won't cut it. (If you have a part-time side business and work for that exclusively from a home office, that could qualify.)
There's some math involved. To claim a home-office deduction, you'll need to calculate what percentage of your home is taken up by your office. For example, if your office is in a 12'x12' room (total square feet: 144) in a house with a total of 1,440 square feet, then your office takes up 10% of your home. You can now deduct 10% of utilities such as electricity and heat, as well as that portion of mortgage interest, property taxes, home insurance, security expenses, homeowner association fees, home repairs, and maintenance expenses. You can also deduct the full cost of a dedicated phone line into the office if you have one, and the full cost of work done on that room, such as painting it.
Home office deductions sometimes draw the interest of the IRS, but if your deductions seem reasonable and are in line with those taken by similar taxpayers, you'll probably be fine. If you're audited, you can just substantiate your deductions with documentation. For self-employed people in particular, home office deductions can be powerful tax savers.
The article 3 Tax Deductions Homeowners Won't Want to Miss originally appeared on Fool.com.
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