Some of the best perks of owning a home are the tax breaks. Know what expenses you can deduct, and understand how new laws affect you. If you're currently renting, consider the tax advantages of homeownership. This may be the time to buy a home. Remember to consult your tax advisor.
1. Deduct mortgage interest and real estate taxes.
Interest paid on home loans is deductible up to $1 million for a principal residence plus a second home. Property taxes on all real estate are fully deductible.
2. If you bought a home this year, deduct any money paid toward points or origination fees. You cannot deduct closing costs. Points paid on a new mortgage loan for the purchase or improvement of a principal residence are deductible for the year in which they were paid.
3. If you refinanced your mortgage this year or took out a loan to buy a second home or investment property, deduct any points you paid equally over the life of the loan. Any points paid on a refinanced mortgage or a loan to purchase a second home or income property must be spread over the life of the loan. Some exceptions apply.
4. Deduct private mortgage insurance (PMI).
Taxpayers with adjusted gross income of $100,000 or less can fully deduct premiums for private mortgage insurance (PMI). The deduction is allowable only for insurance on loans that were originated after Dec. 31, 2006, and before Jan. 1, 2011.
5. If you moved 50 miles or more for a new job, deduct moving expenses. If you relocated for a new full-time job at least 50 miles away from your previous home, you can deduct the cost of packing, transporting or storing your household goods.
6. If you sold your house this year, see if you're subject to a capital gains tax. If the profit you received from the sale of your house is under $500,000 for married couples or $250,000 for single owners, you are exempt from the capital gains tax.
7. Home improvements and mortgage closing costs are not tax deductible. But, when you sell your house, they can be used to offset your capital gains tax burden, should you have one. Keep all receipts of permanent home improvements and mortgage closing costs so they can be figured into the adjusted cost basis of your home when you go to sell.
8. If you did a short sale this year, the debt forgiven by your lender can be excluded from your taxable income. Thanks to a new law, you can exclude debt up to $2 million if it was discharged by the lender in 2007, 2008 or 2009.
9. Take advantage of energy efficiency tax credits. Going green is good for the environment and your wallet. You can qualify for a tax credit with documentation of energy efficient updates to your home.
10. If your home was damaged from a sudden, unexpected event, such as a natural disaster, fire, vandalism, or theft, deduct some of the loss.
You may deduct all expenses not covered by your homeowner's insurance, minus a $100 deductible and 10 percent of your adjusted gross income.
Psalms 118:23 "This is the LORD's doing; it is marvelous in our eyes."