What are common real estate tax deductions for homeowners?

I love helping homeowners save money on their taxes! Owning a home opens up many opportunities to reduce your tax burden through various deductions. These tax benefits make homeownership more affordable and put more money back in your pocket come tax season.

Deduction: A deduction is an expense that can be subtracted from your total taxable income to reduce the amount of taxes you owe. Common real estate deductions include mortgage interest payments, property taxes, and certain home improvement costs.

Introduction to Real Estate Tax Deductions

Tax deductions from homeownership can save you thousands of dollars each year. These savings directly impact your bottom line by lowering your taxable income. Many homeowners miss out on valuable deductions simply because they don't know what they can claim. I'll walk you through the most common deductions and show you how to maximize your tax benefits.

Common Real Estate Tax Deductions

Mortgage Interest Deductions

Your mortgage interest payments typically make up the biggest tax deduction for homeownership. You can deduct interest paid on up to $750,000 of mortgage debt (or $1 million if you bought your home before December 15, 2017). This includes interest on your primary residence and, in some cases, a second home. Home equity loan interest may also qualify if you used the money for home improvements.

Property Tax Deductions

Property taxes paid to state and local governments are deductible, though the Tax Cuts and Jobs Act placed a $10,000 cap on combined state and local tax (SALT) deductions. This limit includes property taxes plus state and local income or sales taxes.

Home Office Deductions

If you use part of your home exclusively for business, you might qualify for a home office deduction. You can choose between two methods:

• The simplified method: Deduct $5 per square foot of office space (up to 300 square feet)

• The regular method: Calculate actual expenses based on the percentage of your home used for business

Home Improvements and Repairs

While regular repairs aren't deductible, capital improvements that increase your home's value can be added to your cost basis, reducing potential capital gains tax when you sell. Energy-efficient upgrades might qualify for special tax credits. Medical necessity modifications, like wheelchair ramps or bathroom grab bars, could qualify as medical expense deductions.

Special Circumstances and Additional Deductions

Mortgage points paid upfront can be deductible in the year paid or over the life of the loan. Military members can still deduct certain moving expenses. If you rent out part of your property, you'll have access to rental property deductions for expenses like maintenance, utilities, and depreciation.

How to Claim Real Estate Tax Deductions

Keep these important documents handy:

• Form 1098 from your mortgage lender

• Property tax statements

• Receipts for home improvements

• Documentation for any home office expenses

You'll need to itemize deductions rather than take the standard deduction to claim most real estate tax benefits.

Common Mistakes and Pitfalls

Don't make these common errors:

• Forgetting to track improvement expenses

• Missing deadlines for energy tax credits

• Mixing personal and business expenses for home offices

• Not keeping proper documentation

Planning for Future Tax Benefits

Start a filing system for all your home-related expenses. Track improvements, maintenance, and tax documents throughout the year. Stay informed about tax law changes that might affect your deductions.

Frequently Asked Questions

• Q: What if I bought or sold a home mid-year? A: You can deduct qualifying expenses for the portion of the year you owned the home.

• Q: Can I deduct my homeowners insurance? A: Regular homeowners insurance isn't deductible unless part of your home is used for business.

• Q: How do vacation homes affect deductions? A: You can deduct mortgage interest and property taxes on a second home, but rules vary based on personal use versus rental use.

• Q: What about mortgage insurance premiums? A: Mortgage insurance premiums might be deductible, depending on current tax laws and your income level.

Conclusion and Next Steps

Taking advantage of real estate tax deductions requires organization and knowledge. Bellhaven Real Estate's experts can guide you through the tax implications of buying or selling property. Schedule a consultation with our team to learn more about maximizing your real estate tax benefits.