2017 tax tips for homeowners
#Homeownership used to be thought of as “the American Dream.” But 2016 saw the lowest rate of homeownership since 1965. The shrinking of the middle class is one of the key factors behind the decline in homeownership. And that’s a loss all around, because homeownership unlocks some of the biggest tax breaks available to middle-class Americans.
#If you own a home, or if you’re considering taking the plunge in 2017, here are some valuable deductions you may be able to claim come tax season.
Mortgage interest
The interest paid on a home loan is usually the largest deduction available to middle-class Americans. For example, a mortgage loan of $500,000 at 4.5 percent interest has a monthly payment of $2,533. Total payments for a calendar year are more than $30,400. Of that, $22,330 can be deducted from your tax bill.
Points
If you purchased a home in 2016 and paid “points” to the bank in order to get a better rate, that expense is deductible in the year you paid them. A point is typically 1 percent of the loan amount. So, on a $500,000 loan, you would get a $5,000 tax break for paying one point.
Equity or Home Improvement loan interest
You may be able to deduct some of the interest you pay on a home equity loan or line of credit. The IRS places a limit on the amount of debt you can treat as “home equity.” However, if you take out a loan to make substantial home improvements, you can deduct the interest with no upper dollar limit. (Note that the improvements must be “capital improvements,” and not ordinary repairs.)
Property taxes
State or local taxes levied on your primary residence are deductible. In King County, the effective tax rate is 1.08 percent, on par with the national average. That translates to property taxes of $5,400 for a home valued at $500,000. Deducting this big local tax bill on your federal return can save you a bundle when you file.
Energy credits
If you make improvements that increase the energy efficiency of your home, you may qualify for a tax credit. These include projects like adding insulation, or more energy-efficient windows, doors and roofs. A tax credit is even better than a deduction because it is a dollar-for-dollar savings. For example, if you’re in the 28 percent tax bracket, then a $1,000 deduction lowers your tax bill by $280. But, a credit lowers your tax bill by $1,000, regardless of your effective tax rate.
Home office deduction
If you use a portion of your home exclusively for business purposes, you may be able to deduct home costs related to that portion, such as a percentage of your insurance and repair costs, and depreciation.
Casualty loss
If you suffered property damage you may be eligible for a big deduction. Whether the cause was flooding, a fallen tree or vandalism, damage to your home can cost you thousands of dollars out-of-pocket. (Note that your casualty loss deduction must exceed 10 percent of your adjusted gross income. Contact a CPA for more information on casualty losses.)
Moving costs
If you move to take a new job, you may be able to deduct some of your relocation costs. To qualify for these deductions, you must meet several IRS requirements, including that your new job must be at least 50 miles from your old home. Moving costs that may qualify for deductions include travel, transportation, hotels and personal property storage.
Selling costs
If you decide to sell your home, you can reduce your taxable capital gain by the amount of your selling costs. Real estate broker's commissions, title insurance, legal fees, advertising costs, administrative costs, escrow fees, and inspection fees are all considered selling costs. Locally, selling costs average about 8 to 9 percent.
For more information on real estate tax laws, visit www.irs.gov. You'll find basic information for first-time homeowners (IRS Publication 530) and publications about selling your home (IRS Publication 523), business use of your home (Publication 587), moving expenses (Publication 521), and home mortgage interest deductions (Publication 936).