It’s April, so like most Americans you probably have taxes on your mind. If you filed early and got a refund, you might be considering wise ways to invest the money. Spring signals a huge kickoff in annual home sales in Utah and around the country, and many prospective homebuyers are wondering if now is the right time to take advantage of refunds and move on up.
While an annual refund can be just the impetus for a well-timed home purchase or sale, tax season also reminds us of all the tax benefits that come with owning a home in the first place.* If you asked for an extension and are already a homeowner, make sure you are taking advantage of all of these tax deductions on your return:
Mortgage interest: Claim this on Schedule A to deduct any interest paid on a first and/or second home mortgage of up $1 million for a single taxpayer or $500,000 for those filing jointly. To qualify, your home must be secured by the loan, but a home can come in different packages, such as a trailer or boat, as long as you sleep and cook in it.
Prepaid interest: Remember those points you paid when you closed on your home loan? Those are typically 100% deductible in the year you paid them. If you refinanced to get a better rate, things get a bit trickier. You must deduct refi points over the life of the mortgage, but it still helps your tax bill.
Property tax: If you own a home, you pay property taxes in the county in which it resides; you’ll see this figure on an annual escrow statement. These taxes are fully deductible, and you can also claim any property taxes paid at closing if you purchased a new home during the tax year.
Mortgage insurance: For those homes that require private mortgage insurance, typically because a down payment was under the preferred 20%, these PMI premium fees are deductible. Likewise, government-backed insurance premiums such as those related to FHA, VA or the Rural Housing Service may qualify for write-offs. Ask your tax advisor about specific rules.
Vacation-home expenses: If you’re lucky enough to own a second property that you use to vacation fewer than 15 days and rent out more than 14 days, you can claim related expenses as a rental property. If you vacation there more often, you can still write off some expenses, but make sure you keep good records.
Efficiency upgrades: A nice government initiative called the Nonbusiness Energy Tax Credit allows you to claim a credit for installing energy-efficient systems in your home. The credit equals 10% of the total amount you spent on the upgrade, with a lifetime cap of $500. Utah taxpayers may also claim a non-refundable credit for installing an active solar, passive solar, biomass, direct-use geothermal, geothermal heat-pump system, wind or hydro-energy residential system. Additional residential energy systems or parts may be claimed in following years as long as the total amount claimed does not exceed $2,000 per residential unit.
Want to know more? If you are considering buying or selling a home in the Salt Lake City area, a Rize Homesource professional can address your most pressing questions.
* Rize Homesource does not advise clients on tax implications; please consult your accountant if you have tax-related questions.