Owning a home is a major achievement. It takes patience, credit improvement, and savings, to say nothing of the stressful home buying process. So why does it sometimes feel like a punishment for your wallet?
You groan every time you hear a weird noise in your house because it could mean a pricey repair. Here’s the good news, though: there are plenty of tax benefits to owning your own home.
While tax laws are constantly changing, here’s a peek at the most common homeowner expenses that give you tax breaks.
Homeowner Expenses You Can Deduct on Your Taxes
Every year as tax season approaches, we all become accountants hunting down as many deductions as we can find. However, it’s never too early to start planning and to know what records to keep. Cut your tax burden with these deductions for homeowners.
1. Mortgage Interest
There is no faster way to depress yourself than to calculate how much interest you’ll pay on your mortgage by the time you pay it off. It feels like you’re sending tens of thousands of dollars or more down the drain.
The bright side is that all that interest is tax deductible. That includes the interest on home equity loans as well.
Before you jump for joy, there are limits to consider. If you have an expensive home, you can only deduct the interest on the first $750,000 of your mortgage. While that is the limit for married couples filing jointly, it’s $375,000 for single people or married people filing separately.
2. Certain Home Improvements
An ambitious homeowner is always looking for ways to raise their home’s value. Great news: you don’t have to wait until you sell your home to reap the benefits.
When home improvements can add to the value of your home or prolong its life, their costs are tax deductible. The cost of standard repairs, on the other hand, are not deductible.
3. Some Tree Removal Jobs
Homeowners don’t just own homes. You may own a piece of land too, and there are deductible expenses that apply to your outdoor property.
One notable expense is tree removal…sometimes. People ask all the time, “Can I deduct tree removal on taxes?” and the fact is that it depends on why they’re removing the tree.
In both the US and Canada, you can deduct tree removal expenses if you’re doing it to stop or prevent damage. For instance, perhaps a tree is dying or dead. Its weakening structure makes it likely to fall and damage your house.
The same applies to trimming back a tree instead of removing the whole thing. If you have to remove branches to prevent them from damaging your house, it’s deductible.
If you’re removing or trimming a tree for cosmetic reasons, it isn’t tax deductible.
4. Certain Energy Efficiency Improvements
Technically this is a tax credit, not a deduction, but it’s important enough that we chose to include it anyway.
To encourage renewable energy, the federal government is offering tax credits to recoup some costs from installing certain efficiency improvements.
These credits apply to four specific improvements: geothermal heating, residential wind turbines, solar energy systems, and hydrogen fuel cells. You won’t be able to get the credit for smaller improvements like new windows.
If you’ve been considering these types of projects, the sooner you act, the better. These tax credits are on a step-down system so the credit will get lower each year.
5. Property Taxes
Property taxes are among those unpleasant expenses that pop up when you become a homeowner. Fortunately, both state and city property taxes are deductible from your federal taxable income.
Some homeowners put funds in escrow throughout the year to pay their property taxes. Be warned: you cannot deduct funds that have gone into escrow but haven’t been paid toward your taxes yet. You can only deduct the money after you pay it toward your tax burden.
6. Home Office Expenses
If you’re part of the growing percentage of the workforce who works from home, it will be a great benefit come tax time.
Whether you’re a remote employee or you own your own business, you can deduct your home office. The deduction is based on how much of your home accounts for your home office.
Let’s say you have a 2,000 square foot home with a 100 square foot office. Your home office takes up 5% of your house. As a result, you can deduct 5% of your mortgage and utilities.
You can also deduct any repairs and improvements you make to your office space.
7. Home Improvements for Medical Reasons
Medical bills can put a serious burden on a person. When your medical condition requires you to make changes to your home, the cost is even higher. Thankfully, you get some relief in the form of a tax deduction.
You can deduct the cost of any medically required home improvements you make. This includes wheelchair ramps, wheelchair lifts, wider doorways to accommodate medical beds, and more.
Keep in mind that this only applies to improvements that are medically necessary. You can’t deduct the cost of a swimming pool with the argument that swimming will improve your health.
A Note to Consider
As helpful as all the information above is, it’s important to realize that it’s all relative. Tax laws change on a regular basis, and that includes adding and removing home-related deductions.
As you’re preparing your taxes, don’t rely on online research alone. It’s always best to consult a tax professional about your deductions to make sure you meet the requirements and that the deduction is still valid.
The Tax-Home Link
As the largest investment most of us will make, your home is a vital part of your financial portfolio. Your taxes are also a crucial aspect of your financial picture. With a bit of knowledge and patience, you can recoup some of your homeowner expenses in the form of tax breaks.
For more awesome financial tips, check out more articles on our blog.