There are many benefits of owning a home. Stashing away equity, home appreciation, and the ability to throw wild parties like the Leonardo DiCaprio in Great Gatsby just to name a few.
However, as tax season is reaching its apex, any of the stragglers who have not yet done their taxes are starting to feel the pressure. For first time homebuyers especially, doing your taxes may seem like a daunting task due to the addition of your home to your portfolio. Luckily, before you consult with your tax professional, HouseLogic compiled a great list of deductions you should be familiar with.
Mortgage Interest Deduction –
The interest on your mortgage is tax deductible up to a mortgage value of $1 million, or $500,000 if you’re married filing separately. Second mortgages can also be included so long as the total mortgage value, first and second, does not surpass $1 million.
PMI & FHA Mortgage Insurance Premiums –
Mortgage insurance can be deducted as mortgage interest on Schedule A, but it only applies to loans taken out 2007 or later. 2014 is also the last year to submit for this deduction unless Congress renews it in 2015.
Prepaid Interest Deduction –
Also referred to as “points” when you obtained your mortgage, are typically 100% deductible in the year you took out the mortgage. The same rules apply for refinancing. If you use the money for home improvements, any points paid are tax deductible in the same year the loan was taken out. If you use the money for anything else, you need to deduct those points over the life of the mortgage. You can find the amount of points you paid on the 1098 Form your lender sends you.
Property Tax Deduction –
You can deduct the property taxes you pay. You can either check your HUD-1 statement if you bought your home this year or check with your escrow account if you have your mortgage through them.
Energy Efficient Upgrades –
Energy efficiency upgrades could qualify for the residential energy tax credit. If you’ve installed a biomass stove, new heating, ventilation and air conditioning, insulation, new roofs, doors, windows or skylights you may be eligible for the tax credit. Speak to your tax professional for guidance, but come armed with your information.
Vacation Home Tax Deductions –
Vacation home tax deductions vary by use and type of use. According to HouseLogic, here are the three categories that you may fall into.
- If your vacation home is for your personal/private use, or you rent it out for less than 14 days a year, you deduct mortgage insurance and real estate taxes on Schedule A.
- If you rent your vacation home out for greater than 14 days, but use it yourself less than 15 days (or 10% of total rental days, whichever is greater), and it’s treated like a rental property. You deduct expenses on Schedule E.
- If you rent your home for part of the year and use it yourself for more than 14 days or 10% of total rental days, you need to keep track of all income, expenses and allocate them based on how often you used it and how often you rented it out.
Homebuyer Tax Credit –
Did you claim a first time homebuyer credit between April 8, 2008 and January 1, 2009? If so, you must repay 1/15th of the credit back over 15 years without interest. Because of this, it’s important to keep track so you can figure this into your return. Similarly, if you used the first time homebuyer credit, but subsequently moved or stopped using it as your primary residence within 36 months of the purchase date, you will need to repay it with your tax return for the year the home stopped being your principal residence. This latter portion would only apply to you in 2014 if you utilized the homebuyer credit in early 2011, and subsequently sold your home within 36 months from that time.
In any case, these pointers are only for educational purposes. We are not tax professionals, but we want you to be able to bring up questions like these that could save you money to the appropriate professional. Best of luck with your taxes this year!