If you are considering or have bought your first home recently, congratulations! As you may already know, there are a few perks to owning your home rather than renting. The elimination of ever-increasing rent costs is perhaps the most familiar, and you now have a nest egg building in the form of equity. In addition, you no longer worry about every little pinhole in the wall; they’re yours to do as you please. You can build new ones and paint them any color you like, as often as you like. You may have also heard that there are tax benefits. But what are they, and what is needed to take advantage of them?
Tax Reductions for Homeowners
Several tax deductions and credits have been created to encourage homeownership:
- Mortgage interest paid throughout the year – possibly the most substantial annual tax deduction available each year to homeowners
- Morgage points paid at closing – if you opted to pay points to reduce the interest rate of your loan, they may be added to your deductions
- Property taxes – another ongoing deduction available for the real estate taxes paid each year
- Home improvements and efficiency upgrades – promoting energy efficiency has been a priority for many years. Deductions and credits may be combined with rebates to cover most, if not all, of the cost of certain improvements
- Home office space – with the increase of individuals working from home in the past few years, this is a popular deduction, but you’ll want to carefully research what qualifies for the savings.
Getting Prepared for Tax Time
As with any paperwork, knowing what is needed for tax documentation in advance is helpful. In addition, setting aside receipts and documents throughout the year can reduce the search at tax time and possibly some corresponding stress.
- Save receipts and mortgage statements in a designated envelope or file. Use a brightly colored file folder to help it stand out and make it easy to find. Keep all papers related to that year together in case there is ever a need to look back for supporting documents.
- Keep a checklist of all mortgage-related documents to ensure you receive all your documents by February. That way, you can easily track down any missing documents.
- Print documents and statements received electronically for ease of reference while filing and a physical copy in your file.
- Back up all documents and computer files to the cloud or to a hard drive kept somewhere other than your home.
- If you have questions about possible deductions, the IRS is available all year long to answer questions for free or if you have a tax preparer, check with them before the busy tax season. Be sure to keep notes, including who you talked with and when.
Tax time can be stressful, but with a bit of planning may be less so. At Network Title, we strive to make the home buying process less stressful and supply clear documentation for your tax filing each year.