Tax season is here, and it goes without saying that we all want to get the most out of our refund. Homeowners have quite a few ways they can save money during tax season, but most don’t understand all the opportunities available to them. Owning a home means you have access to federal income tax breaks, and taking advantage of these could help you tremendously.
Below, we’ll provide some tax deduction tips for homeowners and guidelines that will help you make the most out of your tax breaks and maximize your refund.
- Organize. When it comes time for tax season, many of us start scrambling to find receipts or other documents required to file. The best way to prevent this is to start organizing early. Keep hard copies of documents and receipts in a single location, so it’ll be easier to keep track of. We also recommend storing files online, whether it’s on Google Drive, Dropbox, etc. If you lose any of the paper copies, you’ll at least have backup storage.
- Start researching your deduction options. Deductions are helpful when it comes to lowering your total tax obligations, and works by reducing your taxable income. As a homeowner, there are certain eligible expenses you can itemize in your deductions, many of which people are unaware of. A few of these include home mortgage interest, state and local taxes, charitable contributions, and medical expense deductions.
- Find your home improvement receipts. If you make any improvements to your home, your expenses aren’t deductible for the current tax year. However should you sell your home down the line, it can then help alleviate the financial burden. When you do home improvements, you can add those expenses to your adjusted basis. This will most likely be what you paid to purchase the home, construction costs, renovation or repair costs, etc. In the tax year you sell your home, the taxes that come from the sale are based on the sale price and anything you get from the seller (think closing costs), minus your selling expenses. If the amount you get from all those things is higher than your adjusted basis, you could benefit from the sale. Essentially, the higher your adjusted basis is, the less taxes you could pay on your profit from the sale.
- Keep track of home office expenses. This one is timely, considering many of us are working remotely because of the pandemic. If you are self-employed or working from home, you might be able to deduct expenses that are used to run your business. Not everyone can claim this; only if you’re using it regularly and exclusively for working purposes. The type of expenses you deduct could include expenses you’ve used to create the office, and depreciation for the portion of the home that is being used.
Even after your taxes are complete, make sure you keep the files. It’s important to always have these documents readily accessible, as you never know when you might need to reference them again.
We hope you enjoyed these tax deduction tips for homeowners. Ken Venick is licensed in Maryland, Washington DC, Virginia, New Jersey, Delaware, Pennsylvania, North Carolina, and Florida. We are locally owned and operated which means we don’t have the overhead of national firms. If you need a mortgage lender, contact us today.