If this is your first home, you are about to find out that you have become an itemizer and that Schedule A of your tax returns has become your new friend. Say goodbye to the 1040EZ but say hello to more money in your pocket. There will even be one brief second when you are glad you paid mortgage interest, right when you hit “enter” on your mortgage interest entry and you see your owed taxes go down, A LOT. Like I said, a very brief moment.
BUT THERE MIIGHT BE EVEN MORE DEDUCTIONS or CREDITS your home has to offer. Some closing costs are deductible, County property taxes reduce your Federal tax, and you might have some credit for installing energy efficient appliances, improvements, or the use of part of your home as a home office and even moving expenses depending on the circumstances of your move. For detailed information I advise you to refer to IRS Publication 530, Tax Info for Homeowners. CLICK HERE FOR THE OFFICIAL PUBLICATION Here are a few of the highlights.
MORTGAGE INTEREST DEDUCTION: This is a direct dollar for dollar deduction. For every dollar you pay in mortgage interest on your principle or second residence, you can deduct that amount from you gross income and therefore the taxes you owe. (you can do this for investment properties as well, but it’s on a different tax form) Mortgage Interest can include first and second mortgages, and home equity or home improvement loans. If you closed in 2013, don’t forget your “prepaid interest” which you will usually find on line 901 of your HUD-1 Settlement Statement you got at closing. You will receive a “Mortgage Interest Statement” from your mortgage servicer, (the company you send your payment to each month) that will give you the total interest paid through your payments.
ORIGINATION POINTS: You might recall at closing you probably paid some “points”. Even if the seller agreed to pay these for you, they are still a tax deduction. You will find this amount on line 802 of your HUD-1 Settlement Statement. Even if your real estate agent negotiated with your seller to pay this charge for you, you still get to take it as a deduction.
MORTGAGE INSURANCE PREMIUMS: If you put less than 20% down on your home, there is a good chance you are paying Mortgage Insurance. This includes the monthly premiums you might be paying to either a private mortgage insurance company (PMI) or mortgage insurance paid to FHA. Upfront insurance premiums paid to FHA or the VA have special rules which might make it worth consulting a tax advisor. As of right now, this deduction goes away after this year, so enjoy it while you have it.
HOME OFFICE: The IRS has simplified the home office deduction this year. You can take a flat simplified deduction of $5 sq ft for up to 300 sq ft of your home you use as dedicated office space. (or you can still use the older calculated method if that is to your benefit) The rule states you must use the space exclusively and on a regular basis for business purposes, but if you do GO FOR IT. Here is a link for more information on this http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Simplified-Option-for-Home-Office-Deduction
ENERGY EFFICIENCY CREDITS: These are even better than deductions, these are CREDITS that you can receive as refunds if they exceed your taxes owed. If you installed upgraded insulation, energy efficient appliances like water heaters or furnaces, solar panels, etc. you probably have some credit coming. Chances are the contractors that did these installations for you made you well aware, but just in case here is the link. http://www.irs.gov/uac/Newsroom/Get-Credit-for-Making-Your-Home-Energy-Efficient