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Tax Season Is Here

It’s that time of the year again – Income tax season. We thought it would be timely to highlight some of the most important tax deductions related to your home you may be eligible for:

  1. Tax Deductions based on your Loan:
    • Mortgage Interest:
      The mortgage interest deduction is regarded as one of the largest incentives for home ownership. If you have a loan on your property you can deduct the interest you pay on that loan up to a balance of $1 million. To utilize this approach requires itemizing your taxes rather than taking the standard deduction. However, the extra effort can really provide substantial savings. For example, if you are in the 28% tax bracket and have $10,000 in mortgage interest you can save $2,800.
    • Private Mortgage Insurance:
      If you acquired your loan in 2007 or later you can deduct payments for private mortgage insurance. PMI deductions are for a primary residence or a second property that is NOT a rental unit. Additionally, the requirement has an income cap of $109,000 filing jointly or $54,500 filing single.
    • Discount Points:
      When securing a loan If you bought the interest rate down by paying discount points you can deduct the full cost of that investment of buydown in the year they were paid.
    • Property Taxes:
      State and local property taxes can be deducted using the itemization approach. The amount of the deduction is also predicated on when you pay your property tax. i.e. – The earlier you pay could have a positive impact on your return.
  2. Tax Deductions based on how your property is utilized:
    • Home Office:
      If you have a room or dedicated space in your home for work and nothing else, you can take a home office expense.
    • Medical improvements:
      If you have made improvements to your home to accommodate medical based needs, you may be able to deduct a portion of that expense. Specifically, you can capture the costs that have increased the home’s value. (not the entire expense of the improvement). For example, ADA type bathrooms, showers, and or entrance ramps, etc.
    • Energy Efficient tax credit:
      You can take advantage of an energy efficient tax credit of up to ten percent of the amount paid up to $500 for green improvements. Low flush toilets, storm doors, energy efficient windows, and heating and cooling systems are examples.
    • Short Term Rental:
      In the exchange economy, many are utilizing their home as an income source. If you rent out your home for a short duration (under 14 days total for the year) the income on the rental is tax free. For example, you rent you home for a week during summer holidays or rent out your home for a major event like The Masters, or the Super Bowl.
  3. Tax Deductions that are transaction related:
    • Capital Gains:
      If you sell your property you can avoid capital gains tax (up to $250,000 filing single or $500,000 filing jointly) provided you meet the following criteria. You have owned the home as your primary residence and occupied the home two of the last five years leading up to the sale.
    • Expenses that are not tax deductible:
      • HOA dues
      • Appraisal fees
      • Cost of improvements to your home (unless they qualify as a medical expense as noted above)
      • Legal and recording fees
      • Any settlement fees

This list is intended as a general reference. DLJ Financial does not provide tax advice. Please consult your professional tax preparer for more information. For more tips on what you can and cannot deduct check out these links from the IRS, which are very helpful:

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