When it comes to saving money, most homeowners are more than happy to jump into a tax loophole or two. The good news is that those loopholes abound, and they are perfectly legal ways to save money on your yearly taxes. Here are some of the most common ones, and a few that you might not have considered.
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The mortgage interest deduction
This is by far the most common tax deduction for homeowners. You can deduct all the interest paid on a loan throughout the year, on up to one million dollars of property (single taxpayers can go up to $500,000). And don’t forget the possibility of ‘points.’ These points typically equal up to one percent of the loan principal. Any points associated with the purchase of a home can be deducted, and that can give you thousands of dollars back.
If you had to purchase private mortgage insurance, you might be eligible for more deductions, depending upon whether Congress chooses to renew the loophole each year. However, if you earn more than $109,000 per year for a married couple or more than $54,500 for a single person, you are out of luck with this one.
Tax credits related to energy
There is still time to take advantage of some of these tax loopholes, but plan wisely, as they are closing fast. Those who have installed geothermal, wind, solar or fuel cell systems might be eligible for a credit of up to 30% of the cost. There is no limit to the amount of the credit you can receive, which is very nice for those who are transforming their home into a more sustainable abode. However, some credits are expiring in 2016, while others might be extended — check the latest tax news to be sure which credits are still in force.
Also known as real estate taxes, these are eligible for deduction every year, provided you actually paid taxes during that year — money put into an escrow account to pay future taxes does not apply. Keep in mind that the rules are different for investment properties and those that are not your primary residence, so it pays to get the most current information from a tax attorney or accounting professional.
Equity or home improvement loans
If you have taken out money to improve upon your home, you just might be able to use those improvements as a nifty tax loophole. If you have paid for a capital improvement through a home improvement loan — such as a new roof or upgraded insulation — you can deduct all of the cost. Interest on home equity loans is also a possible deduction, but certain requirements must be met in order to determine just how much of it you can claim.
Deductions for moving costs
Did you move into your home this year? Did you move because you got a new job that was over 50 miles away from your old one? If so, you might be able to take advantage of this little-known tax loophole. Be sure to save all receipts, as the deduction can include travel and transportation costs, the cost of your lodging during the move, and even fees to store your personal items.
Home office deduction
With more people choosing to work from home, this deduction has become much more attractive. In addition to the typical deductions you would expect — such as for office supplies — you might also be able to claim a portion of your homeowner’s insurance, repair costs, and depreciation. The home office deduction also applies to those who are using a garage as a repair shop, or those who are using an outbuilding to create items for sale.
Money for selling your home
This can be an enormous boon to those who are going to receive a nice chunk of change from the sale of their primary property. You may exclude up to $500,000 of the gains if you are married, and $250,000 if you are single. Keep in mind that tax credits or deductions this large can easily trigger an audit, so it pays to have a professional take a look at your taxes if you do choose to use this particular tax loophole.
Check with your tax pro
This is by no means an exhaustive list of tax breaks; there could be other opportunities to save big money. Always remember that the tax codes changes each year, so some of these deductions or credits might not be in effect from one year to the next, or might have undergone substantial changes. Consider this article a starting point; to be certain of your tax burden, deductions, credits and other points, talk to a tax professional.
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