With tax season coming to its end, three words are a beacon of hope through the fog of W-2s, 1099s, and 1040s: homeowner tax deductions.
There are certain deductions only homeowners can claim, according to John Gregory, founder of 1040Return.com, which offers tax-related services and works with small businesses and the self-employed. “If you have taken out a homeowner’s loan, consider these deductions as Uncle Sam’s gift to you.”
This year, 1040Return.com has compiled a list of the most significant tax deductions homeowners can take advantage of — or store in their back pockets for next year:
1. If you bought a home in 2014 by taking out a mortgage, then apart from the interest, you can also write off the points. (Points are the fees paid to the lender for getting the loan. One point is equal to one percent of the principal loan amount. The fee can vary from one to three points.) You can claim a full deduction for the points, provided they pertain to the purchase of the home.
2. What if you decided to stay put and take out a home-improvement loan instead? It sounds bleak, but come tax time, there’s a silver lining: The interest accrued on that loan is fully deductible if the project benefits the main home and increases its overall value.
3. Homeowners going green might be eligible to receive the Energy Efficient Tax Credit, with a lifetime limit of up to $500. Projects that determine your suitability include putting in qualified storm doors, replacing your windows with energy-efficient ones (only $200 can be applied), improving insulation, and installing efficient air-conditioning and heating units.
4. If you have installed any qualified equipment in your home that uses renewable energy sources — solar-electric systems, small wind-energy property, solar water heaters, fuel cells, or geothermal heat pumps — the Renewable Energy Efficiency Property Tax Credit could make you eligible for up to 30 percent of the cost of equipment and installation. (There is a limit on the amount of credit for fuel cell property.)
5. The taxes paid to acquire your property are fully deductible from your 2014 taxable income. In addition, transfer tax, which comes into play when a previous owner transfers the property to a new one, is a common item seen on tax forms for homeowners.
6. This tip is for those of you who own your house but rent the land. “Redeemable ground rents” are deductible if you make monthly or annual payments.
7. Reverse mortgages are considered, tax-wise, to be an advance on a loan, and subsequently they are not taxable. Any interest acquired, however, is not deductible until the entirety of the loan is paid off.
It might be too late for you to get your finances in order for this tax season, so 1040Return.com offers the following tips for (relatively) simple filing next year:
■ Keep files on the real estate taxes you pay every year.
■ Save receipts. Every time you make an improvement to your property, you won’t be able to write off the cost at that time, but when you want to sell your home, those improvement expenses should be added to the asking price.
■ If you are getting ready to sell your property, be sure to dig up a copy of the settlement agreement dating back to when you bought the home. If you sell for more than you paid and don’t purchase another property right away, any gains made in the sale would be subject to tax if it exceeds $250,000 for an individual homeowner or twice that for a married couple filing jointly.
“Buying a home can be a stressful ordeal,” Gregory said, and you don’t want tax season to add to the load.
If you take the time to understand the possible benefits afforded to you, homeowners, you can make the experience, well, less taxing.Emeralde Jensen-Roberts can be reached at email@example.com.