Easy Tax Benefits of Home Ownership
Although becoming a homeowner can often be a grueling process, there are also many tax benefits that come with the process. Being a homeowner might seem financially draining at first glance, but new homeowners can actually collect tax benefits of up to forty percent of home-related expenses! Listed below are a few of the benefits that owning a home can grant.
Mortgage Interest Deduction
One of the primary tax benefits to owning a home is the mortgage interest deduction. The mortgage interest deduction is a frequently used tool that allows homeowners to deduct the amount of interest paid on a loan used to purchase or improve a property.
In order to qualify for a mortgage interest deduction, individuals must report the amount of their mortgage interest on Schedule A of Form 1040.
Home Improvement Deduction
While not all home improvement costs are deductible, any service or product that adds value to your home may qualify for a home improvement deduction. Examples of approved home improvement tax deductions include making your home more energy efficient by utilizing products such as solar panels.
Keep in mind, a repair is different than an improvement. An improvement must follow these guidelines: adding value to a property, extending the property’s life, and adapting the property to new use.
Homeowners can also take advantage of the tax benefits that come with simply owning a house! If an individual has lived in a house for at least two out of five years prior to selling the house, the profits from said sale may be excluded from taxes (see page 3).
Married individuals can be excluded from paying taxes on profits up to $500,000 while single individuals can save up to $250,000! To determine your eligibility, the IRS advises individuals to take their Eligibility Test.
Depreciation is a yearly income tax deduction that allows individuals to deduct the costs of buying and improving a property from their tax returns. Any property or assets an individual owns for personal use is not depreciable.
In order for an asset or property to be considered depreciable, it must be owned by the individual, used for business or income generating activities, it must last over a year and it must have a “determinable, useful life.” Examples of depreciable property include home offices and rental property.
Rajneet Kaur, EA, MBA, Certified Tax Resolution Specialist is the Company Director of LifeBack Tax. LifeBack Tax is a tax resolution firm based in Chatsworth, CA that specializes in determining structured solutions for clients who owe back taxes to the state or IRS. With over 16 years of experience in the industry, Rajneet and her team have been able to resolve state and IRS debts for countless clients across the nation! To get in contact with Rajneet and the LifeBack team, call (855) 605-1500 or send an e-mail to [email protected].