Top Tax Breaks for Homeowners

As we begin the new year, I wanted to point out several tax deductions that some people might overlook. As a Houston Realtor, it is my hope that I can save you some money on your taxes. These were compiled from several sources.

1. Mortgage Refinancing Costs - If you own your own home and you refinance your mortgage, you can deduct the points over the lifetime of the loan. If you have a 30 year mortgage, you are able to deduct one-thirtieth of the points every year.

2. Home Improvements for Energy Savings  - You wouldn't think about it normally, but going green in your home can give you tax credits. If you make home improvements that result in energy savings, the cost of these improvements could be deducted. You are able to claim a tax deduction that is equal to 30 percent of the total cost of your home improvements made towards energy savings. The maximum amount of money you can claim on energy saving home improvements is $1,500. The downside to this is if you claimed that amount in 2009, you can't get the same tax deduction for 2010 if you made home improvements that year.

3. Home-buyer credit. We put this last on the list because it’s hard to imagine any taxpayer missing this big a tax break. But some deadlines were extended and you don’t want to miss out if you qualify for the credit. First-time home buyers and longtime homeowners qualify for this break in 2010 as long as they either closed a home sale by April 30, 2010 or entered into a binding contract to purchase a home by April 30th and closed on the deal no later than September 30th. The credit is $8,000 for first-time home buyers (someone who didn’t own a home in the three years leading up to the purchase of a new home) and $6,500 for longtime homeowners (those who continuously owned a home for at least five of the eight years leading up to the purchase of a new home). The credit gradually disappears and is phased out for taxpayers with adjusted gross incomes between $125,000 and $145,000 (for singles) and $225,000 and $245,000 (for married couples who file jointly). Also, if you purchased a home in 2010 and want your credit quicker, you are allowed to claim it early by filing an amended 2009 tax return. More questions? See FAQs on the Home Buyer Tax Credits.

4. Tax-free profits - Another major advantage of home ownership is that, in most cases, you don’t have to pay taxes on any profit you make when you sell your home. The law allows you to exclude from taxes up to $250,000 in profit from the sale of your principal home -- $500,000 for a couple who file jointly. This exclusion also covers the sale of a parcel of land adjacent to your house, unless it’s used for business. There are some stipulations, however. The home must be your principal residence, and you (and your spouse, where applicable) must have lived there for at least two of the previous five years. You can only claim the exemption once every two years. If you don’t meet those requirements, you may still claim a partial exemption if the sale was due to a change in your place of employment, necessary for health reasons, or due to other unforeseen circumstances.

5. Property taxes - You can claim property taxes you pay as an income tax deduction. This applies to both your principal home and any others you may own. Any money held in escrow to pay future taxes, however, is not deductible.

6. Moving expenses - The government allows you to write off many of your moving costs when you buy a new home if it’s at least 50 miles closer to your job than your old home. To qualify, you must continue to work full-time in the general area of your job for 39 weeks during the following year. If you’re self-employed and work in your home, any move of 50 miles or more will make your moving expenses deductible. However, you must also work full-time near the new location for 78 weeks during the next 24 months.

7. Equity Loan Interest - You may be able to deduct some of the interest you pay on a home equity loan or line of credit. However, the IRS places a limit on the amount of debt you can treat as "home equity" for this deduction. Your total is limited to the smaller of: $100,000 (or $50,000 for each member of a married couple if they file separately), or the total of your home's fair market value -- that is, what you'd get for your house on the open market -- minus certain other outstanding debts against it. IRS Publication 936, Home Mortgage Interest Deduction, available at www.irs.gov, explains the details.

8. Home Improvement Loan Interest - If you take out a loan to make substantial home improvements, you can deduct the interest, with no dollar limit. However, the work must be a "capital improvement" rather than ordinary repairs. Qualifying capital improvements are those that increase your home's value, prolong its life, or adapt it to new uses. For example, qualifying improvements might include adding a new roof, fence, swimming pool, garage, porch, built-in appliances, insulation, heating/cooling systems, landscaping, or more. (Keep in mind that increasing the square footage of your home could trigger a reassessment and higher property taxes, though.) Work that doesn't qualify for an interest deduction includes repairs such as repainting, plastering, wallpapering, replacing broken or cracked tiles, patching your roof, repairing broken windows, and fixing minor leaks. Wait until you are about to sell your home to gain tax benefits from repair work. (See Selling Costs below.) However, you can use a home equity loan up to the limits discussed above to make repairs, and deduct the interest.

9. Selling Costs - If you decide to sell your home, you'll be able to reduce your taxable capital gain by the amount of your selling costs. (You may not have to worry about your gain at all if it's low enough to fall within the exclusion described below, but if your profits from the sale look higher then the exclusion, take a closer look at this section.) Real estate broker's commissions, title insurance, legal fees, advertising costs, administrative costs, and inspection fees are all considered selling costs. All selling costs are deducted from your gain. Your gain is your home's selling price, minus deductible closing costs, selling costs, and your tax basis in the property. (Your basis is the original purchase price, plus the cost of capital improvements, minus any depreciation.)

10. Mortgage Tax Credit- A home-buying program called mortgage credit certificate (MCC) allows low-income, first-time homebuyers to benefit from a mortgage interest tax credit of up to 20% of the mortgage interest payments made on a home (the amount of the credit varies by jurisdiction). The maximum credit is $2,000 per year if the certificate credit rate is over 20%. (See IRS Publication 530.) You must first apply to your state or local government for an actual certificate. This credit is available each year you keep the loan and live in the house purchased with the certificate. The credit is subtracted, dollar for dollar, from the income tax owed.
 

If you need a Houston Realtor to help you find a home, please contact Paul Silverman, Certified Negotiation Expert, to help find a home for you. Please visit our website at www.ourfirstnest.com

Houston Realtor Paul Silvermanis one of more than 50,000 members of the Real Estate Buyer’s Agent Council (REBAC) of the NATIONAL ASSOCIATION OF REALTORS®, who have attained the Accredited Buyer Representative (ABR®) designation. As the world's largest association of real estate professionals focusing specifically on representing the real estate buyer, REBAC is "The Voice for Buyer Representation," with more than 50,000 active real estate professional members of the organization throughout the world.