Homeowner tax write-offs come in three flavors: tax deductions, refundable tax credits and non-refundable tax credits. Tax deductions lower your taxable income, and the amount of income taxes you pay. Refundable tax credits directly reduce the tax due, dollar for dollar, and are payable to you by refund. Non-refundable tax credits reduce your tax liability, sometimes to zero, but can’t exceed the amount of tax you owe like refundable credits can. Homeowners can use as many write-offs as they are eligible for to reduce their bill at tax time if they file IRS Form 1040 and itemize deductions on Schedule A.
Many tax deductions focus on the homeowner's mortgage, providing a tax advantage over renting. Mortgage interest documented on Form 1098 from your lender, mortgage insurance, points paid on a first mortgage on a property or a refinance, home-equity loan interest, home-improvement loan interest, property taxes and selling costs are all deductible at tax time. These tax deductions represent sizable amounts on Schedule A and are one of the main benefits of home ownership.
Home Office Deduction
If you conduct business from your home, you may want to consider claiming the home office deduction. While there are specific rules for eligibility and accounting, this write-off often offers a good-sized deduction at tax time. This deduction requires you to do some research and come up with solid numbers on things such as the total square footage of your home and the space in it used for business, when your home was put into service for business, and the depreciation on office equipment and furniture. You can claim this deduction even if you work from home for an employer, as long as you have a letter from your employer stating that it is for the employer’s convenience that you work from home.
Tax Credits for Saving Energy
If you are interested in energy-efficient systems for your home, there’s a tax credit for 30 percent of the cost of geothermal heat pumps, small residential wind turbines and solar energy systems for new constructions and existing homes. There’s also a 30 percent tax credit up to $500 per 0.5 kilowatts of power capacity for residential fuel cell and microturbine systems. These tax credits are good through the year 2016, while some previous energy-savings tax credits expired with the 2011 tax year. If you didn’t claim tax credits for energy-saving installations performed in previous years, you may consider filing an amended return to claim them.
Lesser-Known Homeowner Tax Credits
If you own a home that is a certified historic building, you get a 20 percent tax credit on the amount of substantial renovations performed in a 24-month period. If you take out a loan to purchase a recreational vehicle that has cooking, sleeping and sanitation capabilities, the interest on the loan may qualify for the mortgage-interest deduction unless you are subject to the alternative minimum tax. Money received under a reverse mortgage in lump sums or periodic payments are tax-free.
- Huffington Post: Tax Deductions for Homeowners
- The Christian Science Monitor: Tax Deductions: Here Are Five for Homeowners
- Nolo.com: Homeowner Tax Deductions
- Nolo.com: Homeowner Tax Breaks: Learn About Recent Tax Credits and Tax Deductions for Homeowners
- Zillow Blog: 6 Tax Breaks Every Homeowner Should Know
- Energy Star: Federal Tax Credits for Consumer Energy Efficiency
- Kiplinger: Deductions for Homeowners
Heidi Cardenas specializes in human resources, business and personal finance, small-business advice, home and garden and home improvement. Her professional background includes human resources and business administration, technical writing and corporate communications. She has studied horticulture and business administration, and enjoys guest blogging for publications including Herb Companion Magazine, Natural Home Living Magazine, and Mother Earth Living.