Every year there are changes to the U.S. Tax Code, sometimes big, sometimes small, and homeowners especially should be aware of everything that applies to them in order to pay the least or receive the largest refund. Some tax rules are relevant only to new homeowners, so people who have purchased a home during the current tax year need to be particularly on their toes at tax time. Here are some tax facts all new homeowners should know.
Mortgage Interest and Points
A lot of people who have never bought a house before know they’ll be able to deduct their mortgage interest each year. However, some filers overlook the fact that they paid points as part of their mortgage agreement with their bank. Points are pre-paid interest that can help a borrower secure a lower interest rate (which will help them for the next 15 to 30 years) and may also be deducted on their tax returns.
Upgrading Your Home and Office
You can’t deduct out-of-pocket money spent on home improvements, but you can deduct the interest you pay on a home improvement loan just like you do for your mortgage. Taking another loan soon after buying a home may seem foolish, but improving your home will increase the value which will be beneficial in the long run. A new bathroom, kitchen, home security system, and upgraded windows and doors are all selling points for when you eventually put your house on the market. If your improvements have included adding a home office by converting unused space in your basement, this is another deduction that will help reduce your tax burden if you actually conduct business out of your home.
According to Forbes magazine “Generally, there is no tax deduction for installing an alarm system at your home. Similarly, the monthly fees are not deductible. If, however, the property that you alarm is a rental or commercial property, the installation and the monthly fees are deductible as the cost of doing business. Additionally, if you take the home office deduction, then you may claim the pro-rata portion of the alarm system on your taxes, just as you do with other home office expenses; the portion attributable to the non-office portion of your home is still not deductible.” The same logic would apply to carbon monoxide detectors and their monitoring.
Why Did You Move?
Speaking of work, if you moved over 50 miles so that you could land the job of your dreams, you’re doubly lucky. There are criteria that must be met that you should research further but you moving costs may be deducted if you meet them.
Taxes, Taxes, Taxes
In many cases, the government tries not to double-dip into your pocket when it comes to paying taxes. So in essence, you don’t pay tax on tax. What this means is that things like the amount you pay in state income tax isn’t taxed at the federal level. The same goes for real estate tax. Whatever money you pay in real estate tax, usually to your town, isn’t taxed again by the state or federal branches of government.
In the end, you should check into deductions and rebates every year that you own a home and not just on the federal level. Many states offer tax incentives of one nature or another and these can be added, removed, and changed each year, so be a diligent tax warrior and get back everything you deserve!
