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Tax Deductions Homeowners Often Overlook (and How to Claim Them)

Hello, homeowners! If you are anything like the majority, you love your pride in ownership of your little slice of the world. But are you reaping all the benefits with your taxes? I’m here to help explore some of those less well-known tax deductions that can quite possibly save a pretty penny by the time those taxes are filed. Let’s dive in!

Mortgage Interest Deduction: The Big One

First, let’s talk about the mortgage interest deduction. This is the big kahuna of homeownership deductions, yet so many people either forget to claim it or don’t understand how big it can be. If you’ve taken out a mortgage to buy your home, the interest you pay on that loan can be a really big deduction.

You can deduct the interest on up to $750,000 of mortgage debt for loans taken out after December 15, 2017; for loans before that date, the limit is $1 million. You can only use this on your primary residence and one secondary residence. Keep those Form 1098s from your lender because that is where your mortgage interest is reported. That goes on Schedule A when you’re filling out your taxes, but it has to be itemized to count. 

Property Tax Deduction: Don’t Miss Out

The second is the property tax deduction. Now, it sounds easy, but the Tax Cut and Jobs Act has a limit. You can deduct up to $10,000 yearly maximum of the state and local taxes combined in property taxes. That includes any state income tax or sales tax if you happen to use either one of them instead, so budget for it. Certain home renovations may qualify for tax deductions or credits, especially if they improve energy efficiency or accommodate medical needs.

To claim this, you’ll again need to itemize on Schedule A. Keep your property tax statements or receipts; they’ll come in handy. Remember, if you’re in a state with high property taxes, this can be a game-changer, but if you pay less than $10,000, consider how this fits into your overall tax strategy, especially if you’re also paying state income tax.

The Home Office Deduction: Work From Home Perks

Well, now, listen up if you’ve been working from home because the home office deduction can be misunderstood and often overlooked. If you are using part of your home “regularly and exclusively” for business, then you may take the deduction on a portion of utilities, insurance, and even depreciation on part of your house. 

There’s the simplified way or the regular method to get the calculation going.

The simplified method: You can take $5 a square foot for home office space, up to 300 square feet, and that gives you a maximum deduction of $1,500. The regular method requires more arithmetic but can lead to a higher deduction. You will use Form 8829 for this. Remember, it has to be used solely for business, so if you converted your dining room into a mini-office, you might qualify. 

Points Paid on Your Mortgage: Immediate Relief

When you buy a house, you may pay points to reduce your interest rate. These points are considered prepaid interest and can usually be deducted immediately in the year paid if they meet certain criteria, such as being related to the purchase of your primary home.

You can deduct points, just like mortgage interest, on your Form 1098. Refinance, though, and the rules get a little more complicated; you could be required to spread the deduction over the life of the loan unless you use part of the refi to improve the home. Because your situation might have unique aspects, always consult the IRS guidelines or a tax professional for specifics.

Energy Efficiency Improvements: Go Green, Save Green

Going green at home? Kudos to you! But certain energy-efficient upgrades can get you tax credits, not just deductions. Think of things like solar panels, wind energy systems, geothermal heat pumps, and more.

The Residential Energy Efficient Property Credit is as much as 26% of the cost for systems installed during 2022 and 2023, then 22% in 2024. There are credits available for nonbusiness energy property credits including items like windows, doors, and insulation; these have lifetime limitations per homeowner. These credits are accessed via Form 5695. Keep in mind, a credit is a dollar-for-dollar reduction in your tax liability-what a great incentive if greening up your house is something you’re planning.

Medical Home Improvements: Accessibility Counts

If you or someone in your home has special medical needs that require home modifications, these can be deductible as medical expenses. We’re talking about installing ramps, widening doorways, or even adding special bathroom fixtures.

To qualify, these expenses must be for medical purposes. The catch here is that all of your medical expenses have to exceed 7.5% of your adjusted gross income before they are deductible. These are reported on Schedule A and keep all of your receipts because documentation is key here. This isn’t about taxation savings; it is about increasing the quality of life, which is invaluable.

Casualty Loss: When Disaster Strikes

Casualty losses from events such as fires, floods, or theft are also deductible. If your home is damaged due to any of these, you may claim a deduction, but the amount has to be more than 10% of your adjusted gross income minus any insurance or other reimbursements.

Use Form 4684 to work out your casualty loss. This one can be particularly effective in those years when you’ve had bad luck, turning a financial disaster into at least a minor tax relief. Keep all your documentation from insurance claims, repair estimates, and more because proving the loss is essential.

Wrapping Up: Don’t Leave Money on the Table

And that’s a wrap on some major deductions most homeowners let slip through their fingers. Keep in mind, that tax laws change and your situation is unique, so while this gives you some pretty good primers, there is just no substitute for personal advice from a tax professional to ensure not only that you’re claiming what you should be but that you’re doing it correctly, too.

But also always keep the records clear, understand the threshold for such deductions or credits, and whether you are better off itemizing rather than taking the standard deduction. Owning a home is a huge investment; taking full advantage of the benefits on your taxes is just plain smart financial sense. Here’s to saving more and enjoying your home even more!

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