It’s tax season once again, that dreaded time of year when you need to get your taxes done.
But if you’re a homeowner, tax season could actually be a joyous time. There are tons of tax breaks available to homeowners that could mean less of a tax burden and possibly a tax return check.
The government has been offering these tax breaks for years to promote homeownership. For new homeowners, this could truly help them offset the cost of homeownership.
“Most homeowners do get a great benefit from all the deductions and some credits,” says Alison Flores, principal tax research analyst with The Tax Institute at H&R Block. “But a lot of people miss some of the benefits.”
She recommends either getting a tax professional to do your taxes or to take your time with your tax preparation instead of just pushing to get it done. Be thorough and research all the possibilities, she adds.
Whether you just bought a home in 2016 or you have been paying a mortgage for years, check out these homeowner tax breaks that might just help you keep more of your money during this tax season:
Mortgage payment interest deduction
One of the biggest tax breaks from buying a home is the mortgage interest deduction.
“Mortgage interest deduction is limited to your first home and vacation home, as long as it is under $1 million in loans,” Flores says.
New homeowners get a big boost with this deduction because they usually pay a lot more interest than principal each month. Flores says that it also covers interest paid on home equity loans up to $100,000.
The deduction is not dollar for dollar, she adds. A homeowner will need to file an itemized tax return to claim the mortgage interest payment deduction.
Mortgage credit certification
Unlike the mortgage interest deduction (which reduces your taxable income), this credit directly counts against your tax bill, lowering what you owe.
According to the IRS, this program “is intended to help lower-income individuals afford home ownership.” Tax credits are applied after your tax has been calculated. A buyer can get 20-30 percent off the interest they pay every year back.
Property tax deduction
When you buy a house, you don’t just have your mortgage – you have taxes to pay to your local government body. But you get a break because you can deduct those taxes on your primary residence. Even if you buy a house in October, you can still claim all taxes paid from the date of sale.
Mortgage insurance deduction
You can deduct your private mortgage insurance or FHA and VA mortgage insurance. The deduction was in place for 2016, but Flores says it will take Congress to reinstate it if it will be allowed for 2017 taxes.
You have to itemize your taxes to take advantage of it, and the insurance contract had to be issued after 2006. Plus, your adjusted gross income cannot exceed $109,000 for a couple to use this deduction.
Mortgage points deduction
If you paid for points to obtain a lower interest rate on your mortgage, they can also qualify for a tax cut.
Home office deduction
If you have a home office, you are allowed to take a deduction for the room or space used, says Flores.
The Tax Institute at H&R Block says that nearly 40 million Americans telecommute, and the deduction applies to the regular and exclusive use of a part of your home where you run a business or trade. This can be anyone from a person who sells Avon to a freelance graphic designer to a plumber.
Also, you can’t have your desk in the baby’s room or family room. The office space can’t be combined with any other room. Special rules apply to certain businesses such as a daycare, Flores says.
There are two ways to calculate a home office deduction including using direct and indirect expenses. Also, the safe harbor home deduction simplifies the process by multiplying the allowable square footage of your office by the rate of $5. The maximum footage allowed is 300 square feet, and the maximum deduction is $1,500.
Residential renewable energy property tax credits
The IRS extended this tax credit through 2016 to help encourage people to install equipment to conserve heating and cooling energy. This credit applies to energy technology such as wind turbines, solar panels, geothermal heat pumps and fuel cells. The 30% credit applies to the cost, including labor and installation, and must be taken in the year the item was placed in service.
Home efficiency improvement credits
Those who are claiming some improvement for this efficiency tax credit can receive up to $500 qualifying installations in 2016.
The work had to be in service by Dec. 31, 2016, but it could have included a new roof, furnace, insulation and much more. Flores says some properties have smaller limits on them with a maximum credit such as $200 for all new windows.
If you have any confusion about what deductions or credits you are eligible for, contact a tax professional, Flores says. You don’t want to leave money behind if it’s yours for the taking.