Owning a home comes with tons of expenses, but it brings some financial benefits too, especially in the form of tax deductions. The Arizona real estate market was on fire last year, so if you find yourself in possession of a new home — or even if you are a seasoned homeowner — make sure you get the maximum benefit of your homeownership. As you prepare your taxes, take a look at these home tax deductions.
Mortgage Interest
This is probably the biggest and most well-known tax break you’ll get. And it’s even better for new homeowners. Because of the way amortization works, you pay the most interest at the beginning of your loan. That means a bigger tax break your first year. You can claim up to $1 million in interest. Keep in mind you will need to itemize your taxes to get this deduction.
Mortgage Points
If you paid points to secure your loan, don’t overlook this tax deduction. When you buy mortgage points, you are essentially pre-paying interest so you can secure a lower interest rate on your loan. Just like regular mortgage interest, you can deduct the cost of mortgage points on your taxes.
Property Taxes
You can’t avoid paying property taxes, but you can deduct the expense from your income taxes. The maximum you can deduct is $10,000. If you have an escrow account with your lender, be sure to deduct the actual amount paid for the year, not the amount put aside in the escrow account.
Energy-saving Improvements
Perhaps you added solar panels or drought-tolerant landscaping to make your home more energy-efficient. If you did, you might be eligible for a tax credit. There are several energy-saving upgrades that qualify for tax breaks, so think about any updates you made. These tax programs do have specific requirements, but if you made any improvements, it’s worth checking to see if they qualify.
Home Office
In 2020 the home office became a necessity for many employees. Depending on your work-from-home situation, you may be able to deduct the cost. The IRS has two requirements in order for your home office to be eligible for this deduction: it must be used regularly and exclusively for your work, and it must be your principal place of business. That means you must have a dedicated space in your home that you use for conducting business, and you don’t have another office elsewhere that you use regularly. If your main office is at your company’s place of business, you won’t be able to deduct your home office. For those who qualify, you can deduct part of your home expenses based on the percentage of your home that is used for office space. You can include expenses like mortgage interest, property taxes, cable, internet, and other home costs.
Homeownership Means Tax Savings
These home tax deductions can save you thousands of dollars. It’s one of the benefits of owning a home. If you’re ready to become a homeowner and take advantage of these tax deductions, contact me today.
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