Home ownership carries many hidden costs. Fortunately, some of these costs can be used to substantially lighten your IRS tax burden. To maximize your tax benefits you must keep careful records, and you must understand how the tax code applies to homeowners. You must itemize your deductions on Form 1040 Schedule A to take advantage of these tax benefits.
You can deduct home mortgage interest payments from your taxable income. This includes the portion of your loan installment payments that are attributable to interest, your mortgage insurance premiums and any other fees you paid to secure your mortgage loan, such as loan origination fees. Your mortgage loan originator is required to send you IRS Form 1098 after the end of each tax year if you paid more than $600 in mortgage interest. Form 1098 lists exactly how much mortgage interest you paid during the tax year and can be used to figure your deduction.
Property Tax Records
You can generally deduct the amount of state and local real estate taxes from your taxable income. An exception to this rule is that you cannot deduct government assessments for improvements to your property, such as sidewalks or sewage lines. You must be legally responsible for the tax to take the deduction. For example, if you are a tenant with a lease obligation to pay property taxes on behalf of your landlord, you cannot take this deduction. Keep your tax bill and use it to figure your deduction.
The home office deduction applies if you use a certain area of your home exclusively for your work. This deduction allows you to deduct the portion of your homeowner's expenses that corresponds to the size of your office compared to the total square footage of your home -- 10 percent, for example. Deductible expenses include mortgage principal and interest, improvements, repairs, insurance, property taxes, utilities and maintenance expenses. Additionally, you can deduct 100 percent of expenses incurred only because of your office -- expenses for a dedicated phone line, for example. You must file Form 8829 in addition to Form 1040. Carefully document these expenses, because the IRS audits suspicious-looking home office claims.
On Schedule A you can deduct losses you suffer to your home and household items due to theft, disaster or unexpected destructive events, such as hurricanes. If these losses are covered by insurance, you must file a timely claim. Moreover, you cannot claim any losses that your insurance company reimburses you for. Keep copies of all correspondence with your insurance company and all third-party appraisals of your losses. Although IRS valuation rules are complex, you are generally entitled to deduct the fair market value of any property you lost, and the diminution in fair market value of any damaged property..
- Internal Revenue Service: Instructions for Form 1098 -- Main Contents
- Internal Revenue Service: Taxes You Paid
- Internal Revenue Service: Topic 515 -- Casualty, Disaster and Theft Losses
- Internal Revenue Service: Publication 530 -- Tax Information for Homeowners
- Internal Revenue Code: Publication 936, Home Mortgage Interest Deduction
David Carnes has been a full-time writer since 1998 and has published two full-length novels. He spends much of his time in various Asian countries and is fluent in Mandarin Chinese. He earned a Juris Doctorate from the University of Kentucky College of Law.