The process of buying a home can be long, stressful, and complex. When everything is all said and done, it’s not uncommon to forget an important factor that comes along with the homebuying process. This important factor is your taxes! Becoming a homeowner can make a serious impact on how you handle your taxes every year. In fact, homeowners may be able to benefit thanks to certain tax deductions. Even seasoned homeowners can find themselves missing out during tax season. While it’s important to have professional help come tax time, you still want to be aware of some beneficial deductions out there!

3 Beneficial Homeowner Tax Deductions

The United States tax code can be tricky and it updates somewhat frequently. Three deductions worth highlighting in particular include:

• Mortgage Interest Deduction
• Home Equity Loan and Line of Credit Tax Break
• Self-Employed Home Office Deduction

Mortgage Interest Deduction

As a homeowner, you could see considerable savings by utilizing the mortgage interest deduction. Taxpayers can subtract the interest paid on their mortgage loan from their taxable income, providing a potential financial benefit.

Before you get too excited, there are some limits to this deduction. These limits, or “caps,” depend on when you took out your mortgage and the type of residence.

• If you took out a new mortgage after December 15th, 2017, you can only deduct interest on debt up to $750k ($375k if married but filing separately).
• If your home is not considered a “qualified residence” under IRS rules, you can’t deduct any associated debts, even if they fall within the monetary thresholds mentioned above.

It’s important to consult with a qualified professional before claiming any benefits. They will be the ones to look at your specific situation to not only see if you qualify, but help you understand this deduction much more in-depth.

Home Equity Loan and Line of Credit Tax Break

It’s possible you could be able to get a tax deduction on the interest payments made towards these loans. This could provide significant financial relief, especially if your loan amount is substantial.

Pre-2018 Home Equity Loans and Lines of Credit

Before 2018, homeowners could deduct interest payments made on their primary mortgage and any additional home equity loans or lines of credit up to $100,000 in debt combined. This was great for those making large-scale renovations without worrying about added tax burdens. However, tax laws changed this in 2018.

Eligibility Criteria for These Deductions

The Tax Cuts and Jobs Act (TCJA) implemented in late 2017 affected homeowners’ ability to claim deductions on interests paid towards home equity loans and lines of credit obtained after December 16th, 2017.

• Deduction Limit: Under TCJA rules, taxpayers can only deduct interest on $750,000 worth ($375k if married filing separately) of qualified residence loans – including your mortgage and any additional home equity debt used for building or substantially improving your property.
• Type Of Debt: According to IRS regulations post-TCJA, only “acquisition” debts qualify for deduction – i.e., money borrowed either during purchase/construction/improvement but not refinancing unless it’s used directly toward improving your house.
• Your Filing Status: Your eligibility also depends on whether you file taxes individually or jointly with your spouse – joint filers get double the limit compared with individual filers.

Note: It’s always advisable to seek professional advice when dealing with complex matters like taxation since every individual case differs significantly based on specific circumstances surrounding one’s personal finances. We know we may sound repetitive, but it’s important to keep in mind!

Self-Employment Home Office Deductions

As a self-employed individual, you can save money on your taxes by taking advantage of the home-office deduction. This deduction allows you to deduct expenses related to your home office, reducing your taxable income. However, this tax break is not available to typical W2 employees.

Criteria for Qualifying as Self-Employed

To be eligible for the home-office deduction, one must determine if they meet the IRS’s standards of self-employment. If you run your own business and are responsible for its success or failure, you can be considered self-employed. This includes operating as an independent contractor, having a part-time business, or earning substantial income directly from customers.

How Does The Home Office Space Qualify?

To qualify for the home-office deduction, your home office must be regularly used for conducting business activities and be exclusively dedicated to business operations. This means no mixing personal and professional use. Even a small space like a closet converted into a desk area can qualify if it’s solely used for business.

Tips For Maximizing Your Home-Office Deduction

• Maintain Good Records: Keep track of all relevant receipts and documents related to your home office expenses throughout the year to make tax season smoother.
• Deduct Expenses Proportionally: Calculate the percentage of total square footage used exclusively for work to determine what portion of household bills can be deducted against earned revenue.

FAQs in Relation to Homeowner Tax Deductions

What tax deductions can homeowners claim?

Homeowners can deduct mortgage interest, property taxes, and some home improvements on their taxes. The list in this article today only scratches the surface of what’s out there. To see all available deductions that you may be able to benefit from, you will want to get in touch with a professional!

Are any home improvements tax deductible in 2023?

Yes, energy-efficient upgrades like solar panels and certain medical renovations may be tax-deductible in 2023. There may be others as well, which is why we recommend a professional.

Overall

As a homeowner, you can save big bucks on your taxes by taking advantage of tax deductions. There are plenty of different deductions. However three specifically worth mentioning include:

• Mortgage Interest Deduction
• Home Equity Loan and Line of Credit Tax Break
• Self-Employed Home Office Deduction

Remember, every penny counts when it comes to tax savings, so be sure to do your research and take advantage of all the deductions available to you. For even better and more specialized support, you will want to get in touch with a tax professional. They can help you throughout the process all while providing information to help you better understand what you are dealing with.