If you’ve been a homeowner for a few years, you’ve likely mastered itemizing your deductions on your federal tax return. But did you know there are other tax breaks and benefits associated with owning a home? Let’s take a look at a few tax tips for homeowners:
If you take out a loan to make significant changes to your home, such as a new roof or an additional bathroom, the interest on the loan may be deductible. Loans for minor upkeep or cosmetic changes are not deductible, so consult with a tax professional to confirm whether you qualify.
Additionally, renovations to accommodate a chronically ill or disabled individual are deductible, to the extent that they don’t increase the fair value of your home. For example, if you installed an entrance ramp and had two doors widened to accommodate a wheelchair, at an expense of $5,000, but an appraiser stated that the improvements only increased the value of your home by $1,000, the remaining $4,000 would be tax deductible.
Residential Renewable Energy Tax Credit
If you install any of several renewable energy systems in your home, you’re eligible for a significant tax credit. Unlike a deduction, a credit directly reduces your tax bill dollar for dollar, making it extremely valuable. If you installed a solar-electric energy system, a solar water-heating system, a fuel cell, a small wind-energy system or a geothermal heat pump last year, you’re eligible to have 30 percent of the cost subtracted from your upcoming tax bill.
Home Equity Loans and Lines of Credit
Home equity loans and lines of credit are making a comeback. The interest on these loans is deductible for up to a $100,000 loan if you’re married filing jointly or a $50,000 loan for single filers, and you don’t need to use the proceeds of the loan on your home to qualify. However, the loan must be less than the equity you have in your home. For example, if your home is appraised at $150,000 and you have a $120,000 mortgage, your loan would only be eligible for this deduction up to $29,999.
Home Office Deduction
If you have a dedicated office in your home that you use in the course of running your own business (including freelance work), you can deduct the expenses of maintaining the office from your business’s gross income. This is a frequently overlooked deduction; talk to a tax professional about whether you qualify.
Disaster and Theft Losses
If your home has been damaged by an unexpected disaster (like a hurricane) or you were burglarized this past year, the financial losses you sustained can be deducted from your federal income tax. That said, if the financial losses are covered by insurance, you can only deduct losses that were not covered.