Buying and owning a home is a big expense -- besides the purchase price, there are the property taxes, heating and cooling costs, maintenance expenses...the list goes on. But the good news is that there are tax savings available to homeowners. Read on to find out about some of the top tax deductions and credits available to those who own a home.
Mortgage interest and points
Most homeowners can deduct the interest paid on their mortgage as an itemized deduction on Internal Revenue Service form 1040, Schedule A. (Deductions reduce your adjusted gross income when computing your taxable income.) And because mortgage interest makes up much of homeowners' monthly mortgage payments, that's a big tax break.
However, if your mortgage is more than $1 million, or your home equity loan is greater than $100,000 you may be out of luck.
The amount of your first mortgage may limit how much you can deduct for mortgage interest on your home equity loan, especially if the debt on your home is greater than your property's value. Read the Internal Revenue Service's Publication 936, Home Mortgage Interest Deduction for complete requirements and information.
If you itemize your deductions on Internal Revenue Service form 1040, Schedule A, you also may be able to deduct your mortgage points in full the year they were paid. If you are refinancing, you can, based on the number of years of the loan, deduct some of the points. Read the IRS's Tax Topic 504 - Home Mortgage Points to get all the requirements and details.
Real estate taxes
As a homeowner, you no doubt hate paying property taxes. But the good news is that real estate taxes can be claimed as an itemized deduction on Internal Revenue Service Form 1040, Schedule A. To find out how much real estate tax you've paid, check your escrow account through your lender.
For homeowners who don't have enough deductions to itemize, they can now increase their standard deduction by adding some of their property taxes to their standard amount, under a new law. Single homeowners can increase their standard deduction by as much $500 (or $1,000 for those married filing jointly). This new law will be in effect through the 2009 tax year.
If you had a work-related move (say, if you landed a new job or if your employer relocated you to a new location), you may be able to deduct your moving expenses. (Use IRS Form 3903 to calculate how much you can deduct and note those expenses on Form 1040.)
To qualify for the deduction, your new job must be at least 50 miles further from your old home than your old job was. Also, you need to have worked full-time for your employer at least 39 weeks in the first 12 months after your move to your new home. Read Topic 455 -- Moving Expenses from the IRS for more information.
Capital gains tax exclusion
Imagine being able to sell your home, pocket the profits and not have to pay Uncle Sam a dime in taxes. That's the tax benefit available to homeowners as long as they've owned their home for at least five years and lived in it at least two of the five years before selling it.
Single homeowners can realize up to $250,000 tax-free in sales gain from the sale of a home, while married joint filers can see up to $500,000 tax-free in gains. Read Topic 701, "Sale of Your Home," for more information.