Tax time. There’s just a little over one month left before your Federal income tax return is due. The vast majority of Americans will file between now and April 18th. That’s right, this year it’s not April 15th, the deadline is the 18th. So you have a few extra days.
Did you know that home ownership can make your Federal tax bill smaller, that’s right, smaller.
Uncle Sam understands how critically important home ownership is to creating a vibrant and healthy economy. It’s one reason why the Federal government has included many financial incentives in the tax code to encourage home ownership.
If you bought a new home in 2016, dig out your settlement sheet. On that document you’ll find some great tax deductions. First, any points you paid to get a better rate on your loan are deductible. If you paid one point on a $100,000 loan you can subtract $1000 from your taxable income. If you refinanced your home this year you can also deduct the points but they have to be spread out over the life of the loan. If you paid less than 20% down you probably have to pay mortgage insurance premiums. If your home loan was originated after January 1, 2007, then that PMI may be tax deductible. Odds are your PMI payment is wrapped up in your monthly mortgage payment. There may be other deductions in there as well. When you pay your mortgage each month, you’re really paying 4 things: principal, interest, taxes, and insurance. You’ve probably heard it called PITI. The property taxes you pay are tax deductible. The mortgage interest deduction allows you to take all the interest you paid on your loan each year and knock it off your taxable income. This is the most beloved of all tax deductions.
If you work from home, you could qualify for a home office deduction. It just has to be your primary place of business and the room has to be dedicated as your workspace. Your kitchen table can’t also be your desk.
The tax benefits continue when you sell your house. This is a big one. If you sell most investments and make a nice profit your capital gain would cost 15 to 20% in taxes. When you sell your home — different rules. The capital gains exception allows people who sell their home and pay NO taxes on up to $250,000 in profit if you’re single and up to $500,000 if you’re married. That’s a lot of money you can save. The home will have to be your primary residence for 2 of the last 5 years and some other requirements as well.
Discuss these rules with a tax professional before you claim any of these deductions.
You see, there are tax benefits to home owners at every stage of the process. When you buy the place, when you live there year after year, and eventually when you sell it. These tax benefits represent big savings, not pocket change, and they’re only for home owners. Another good thing is that it doesn’t matter what kind of home you have — single family home in the suburbs, high-rise condo downtown, or even a one room cabin in the Hill Country, if it’s your home, you’re on tract for some big tax savings.
If you think about it, as homeowners, we celebrate so many special days in our home every year. There are birthdays, Thanksgiving, Christmas, Hanukkah, not to mention Valentine’s Day, Mother’s Day, Father’s Day and many more. But the one day we DO NOT celebrate is Tax Day. We could, even though there’s no big game, no big meal, and no big party that day. There might be big tax deductions, big tax credits, and big tax exemptions. All that might be worth raising a glass on Tax Day to the one thing that makes all of those things possible — this wonderful thing called your house.
One last word — Don’t forget, this is the weekend you change your clocks. Spring forward, set your clocks ahead one hour forward this weekend. You’ll lose one hour of sleep, but you’ll have one extra hour of daylight to get stuff done.