6 Ways to Get the Most Out of Your Tax Return
Tax Season is upon us, and as a homeowner, you have to put in a bit more legwork if you want to make the most of your return.
Owning a home gives you special access to tax breaks, but you have to know what to look for. Many homeowners miss out on several deductions and opportunities to save simply because they aren’t aware of what’s available to them. As you prepare your 2019 taxes, keep an eye out for these six deductions that will help you maximize your tax return.
- Mortgage Interest Deduction
As of December 2017, you can deduct mortgage interest on your home for the first $750,000 of debt (if you purchased before December 2017, the limit is $1 million). To take advantage of this deduction, make sure you’re filing jointly (if married) and that you itemize on your return, rather than taking the standard deduction.
You can also take advantage of interest spent on up to $100,000 of a home equity line of credit. This interest is only deductible if you’ve used the loan to build or improve your property, and it’s included in the $750,000 total deduction available to you.
- Tax Free Profits on Home Sales
If you recently sold your home, you may be able to collect tax-free profits on the sale (up to $500,000 if married, $250,000 if single). In order to avoid paying taxes on a home sale, you must have lived in that residence for at least two of the previous five years — but there are some loopholes. Divorce, short term absences, job changes, and military service are all special circumstances that may allow you to claim a prorated portion of your sale profit tax-free.
- Discount points
If you’re within the $750,000 limit to deduct all of your mortgage interest, you might also be able to deduct any points you paid during closing, too. Some buyers pay for discount points in order to lower their mortgage interest rate — but note, only discount points paid to reduce interest can be deducted. If you paid for points that went toward the lenders’ costs for providing the loan, they won’t be tax deductible.
- Property taxes
You can also get a tax break when it comes to your property taxes, though there is a limit. If you’re filing jointly, you can deduct up to $10,000 of property taxes — $5000 if you’re married but filing separately — along with state and local income and sales tax.
- Home office expenses
If you’re self-employed or work from home, here’s a big area where you can save. You’re able to deduct any part of your home that’s regularly used as a home office, but take note: any square footage you deduct must be used exclusively as an office. In other words, a combination office-guest room won’t qualify.
There are two ways you can go about determining how much you’re able to deduct: the IRS’s simplified method, and analyzing your expenses. The IRS website has all the information you’ll need about whether or not your home office qualifies for a deduction, as well as worksheets you can use to calculate how much you’ll actually be able to deduct.
- Medically necessary home improvements
Any expenses that have gone toward installing health care equipment or medically-necessary home improvements qualify as medical expense deductions. These expenses aren’t restricted to just you, either; if they benefit your spouse or dependent, they’re also considered deductible.
Worth noting is that permanent improvements that increase the value of your home are only partially deductible, since the amount your property value increased reduces your deductible amount. However, improvements that don’t typically increase the value of your home — ramps, widened doorways, support bars — tend to be fully deductible.
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