As a homeowner, you may have tax deductions that you are not even aware of having. The bottom line is that all homeowners deserve all the tax breaks entitled to, which is why we wanted to provide you with some great information on what you might be able to deduct. Remember, if you are uncertain about your tax deductions, you can always consult a professional tax advisor for assistance.
First, any interest on your mortgage loan is 100% tax deductible. Therefore, make sure you have statements from your mortgage company prior to having your taxes done so you know exactly how much interest was paid out for the current year. This deduction alone is worth its weight in gold. Then, if you have refinanced your home, you may be allowed to deduct some or all of the points paid on the new loan. Just remember that you would need to deduct these points proportionately over the life of the loan rather than in one lump sum. Even so, it is a worth deductible.
In addition, any points paid by you at the time of closing on a home loan are also tax deductible. Now, if the seller paid some or all of the points for you, you still might be able to deduct the points as “seller paid points”. Therefore, do not discount this possibility just because the seller paid points. Another thing to remember is that in 1997, a new tax law went into affect called the 1997 Tax Act. With this, once every two years, homeowners can enjoy a tax-exempt profit up to $250,000 but only if you owned and lived in the home. In other words, if you were to sell a home that you owned and were living in and the sale price was less than $250,000, you would not have to pay any taxed on capital gain.
Many times, home improvements can also be deducted. Unfortunately, many homeowners are unaware of this and never advise the tax preparer. The key here is to keep track of all your receipts, regardless of the upgrade. In this case, paint, new hot water heater, fencing, cabinets, carpet, etc could all be deducted in many instances. Then, you can also deduce state and local property taxes on an “expense against income” basis. However, real estate taxes can only be deducted in the year in which they were paid to the government.