Written by Melissa Walcott
While purchasing a home is a massive financial undertaking, there are a few tips homeowners can implement to make the most out of owning a home. Whether a veteran homebuyer or a brand-new homeowner, special tax deductions can lessen the financial burden of purchasing and maintaining a home.
Make the most out of tax season by implementing these five essential tips:
Organization is Key
With endless paperwork and questions, tax season is a stressful time for anyone. For homeowners, this period is particularly stressful as it requires the necessary organization and filing of receipts, tax documents and bills. To avoid the hassle and last-minute crunch of securing paperwork, determine what forms need to be filed and plan accordingly.
To take advantage of the mortgage interest deduction , keeping the 1098 form handy will help simplify the filing process and promote peace of mind if the IRS ever requests an audit.
Itemizing vs. Standard Deductions
While it’s common for homeowners to take a lump sum standard deduction to reduce the amount of taxable income, those with larger total incomes can itemize eligible individual expenses. These itemized deductions can include charity donations, homeowning-related expenses and many other available deductions.
In 2021, the standard deduction for married couples filing jointly was $25,100 and in 2022, rose to $25,900. In the 2021 tax season, the standard deduction for individuals or married couples filing separately was $12,550, which rose to $12,950 the following year. Heads of households had a standard deduction of $18,800 in 2021, and in 2022, this number rose to $19,400.
For an individual filing as a head of household in 2021, a minimum total of $18,800 in itemized deductions will make the process worth it. For any homeowner questioning whether to itemize or take standard deductions, consult a tax expert.
Understanding Eligible Homeowner Tax Deductions
For those questioning what housing-related expenses are deductible, here is an easy-to-reference list:
-Home Equity Loan Interest (if the loan proceeds were used for home improvement).
-Home Office Expenses (if the space is used exclusively for business).
Mortgage Insurance (the year 2021 was the final year for this deduction, though an extension is possible).
What Expenses are Not Tax Deductible?
While reviewing what expenses are deductible, determine what expenses are not deductible to avoid further confusion or frustration when filing your taxes. Unfortunately, certain homeowning expenses do not qualify as deductible. These include but are not limited to:
-Home Insurance Premiums.
-Mortgage Closing or Refinancing Costs.
-Homeowner Association (HOA) Fees.
-Domestic Help Expenses including Lawn Care, House Cleaning, etc.
Please consult a tax professional for any questions related to deductible and non-deductible items.
Home Renovation Tax Implications
It’s widely known that home renovations are a costly process and directly affect a homeowner’s tax bill. To make the most out of your tax return, stay in the know on what eligible tax credit can benefit you the most.
For example, solar and wind energy and other energy-efficient home upgrades may be eligible for an energy-efficient property tax credit. Therefore, it’s smart to review the energy-efficient property credits for homeowners considering energy-efficient changes.
Shared from Atlanta Real Estate Forum