Your house can help you save money on taxes in many ways. You can get money back if you work from home or have a special work room. When you pay your house loan or local taxes, you can pay less to the government too. If you make your home better at saving power, you can get back up to 30% of what you spent.
If you use part of your home for work, you can save money on things like power bills and office items. Each year, you can also get money back just because your house gets older – this can last for 27 years. And if you sell your house, you might not have to pay taxes on the extra money you make.
Think of your house as more than just a place to live – it's a way to save money when tax time comes!
Home Office Tax Deductions
Running your business from home can help you save money on taxes. If you work from home, you can claim a tax break called a home office deduction.
To get this tax break, you need to use a part of your home just for work. You must work in this space often.
You can pick one of two ways to claim this tax break:
- The easy way: Get $5 back for each square foot of your work space (up to 300 square feet)
- The detailed way: Add up what you really spend on your home office, like power bills and fixes
If you pick the detailed way, keep good records. Write down how big your work space is. Save your bills and receipts too.
Remember: The IRS needs to see that you really use this space for work. Keep proof that shows you follow the rules.
Property Tax Write-Offs
You can save money on your taxes if you own a home. The government lets you take off some of the property taxes you pay each year. But you can only take off up to $10,000 in total.
To get this tax break, you need to fill out a form called Schedule A. This goes with your tax return.
What You Can Take Off:
- Your yearly property tax
- Real estate taxes
- School taxes
- County taxes
- City taxes
What You Can't Take Off:
- Taxes when you sell your home
- HOA fees
- Special fees
- Building fees
- Impact fees
Remember: You can only take off taxes in the year you pay them. If your bank pays your taxes from a special account, you can only take off what they paid that year.
Energy-Efficient Home Improvements
When you make your home better at saving energy, you can get money back on your taxes. The government offers two ways to save: one for home fixes that use less energy, and one for clean power like solar.
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You can save up to 30% of what you spend. This helps when you buy new windows, doors, or better insulation. It also works for heat pumps and air systems that save energy.
If you add solar panels or wind power to your home, you can save too.
Make sure to keep all your store receipts and papers that show your new items save energy. Fill out tax form 5695 to get your money back.
Many of your neighbors are already saving money by making their homes use less energy.
Mortgage Interest Benefits
You can save money on your taxes if you own a home. This is because you can subtract the money you pay in loan interest from your taxes.
If you bought your home after December 15, 2017, you can subtract interest on loans up to $750,000. If you bought your home before that date, you can subtract interest on loans up to $1 million.
To get this tax break, you need to fill out a special tax form called Schedule A. You can subtract interest from your main home loan and home equity loans.
But you can only subtract home equity loan interest if you used the money to buy, build, or fix up your home.
You can also save money if you paid points to get a lower loan rate. You can subtract these points over time as you pay your loan.
Home Equity Loan Deductions
Taking out a second loan on your home can help you save money at tax time.
If you use the money to make your main home or vacation home better, you can write off the interest you pay. But there's a limit.
For married couples who file taxes together, your total home loans can't be more than $750,000. If you file taxes on your own, the limit is $375,000.
Interest Deduction Basics
When you borrow money using your home, you can save on taxes. This is done by taking a tax break on the loan interest you pay. To get this break, you need to fill out a special tax form called Schedule A.
Your home loan must be tied to your main home or vacation home. You can get a tax break on loans up to $750,000. If you're married but file taxes apart, the limit is $375,000. This counts for both your main home loan and any extra home loans you have.
But there's a catch – you can only use the money to buy, build, or fix up your home. You can't use it for other things like paying off credit cards or school costs. This rule changed in 2017 with a new tax law.
Qualifying for Tax Benefits
Want to save money on your home loan taxes? Here's what you need to know.
First, your loan must use your main home or vacation home as backup. The money you get must go toward buying, fixing up, or making your home better.
If you're married and file taxes with your spouse, you can only claim tax savings on loans up to $750,000. If you file taxes alone, the limit is $375,000. This counts both your first home loan and any extra home loans together.
You need to list each thing you want to take off your taxes on a special form called Schedule A. You can't use the simple way of doing taxes if you want these savings.
Keep in mind: Since 2017, you can't save on taxes if you use a home loan for things not tied to your house, like paying off credit cards or going on trips.
Capital Gains Tax Exclusions
When you sell your home, you can save money on taxes. If you're single, you won't have to pay taxes on up to $250,000 of your profit. If you're married, you and your spouse can save up to $500,000.
To get this tax break, you need to follow two simple rules. First, you must own the home. Second, you must live in it as your main home. Both of these must be true for at least two years out of the last five years before you sell.
You can use this tax break more than once in your life. But you have to wait two years between each time you use it.
Save all your papers that show what you paid for the house and any work you did to fix it up. This will help you know how much money you made when you sell.
Casualty Loss Tax Breaks
When bad things happen to your home – like a fire, storm, or natural disaster – you can get help with your taxes.
If insurance doesn't cover all the damage, you can pay less in taxes.
To get this help, you need to list all your losses on a tax form called Schedule A. First, take $100 off each loss. Then, the total must be more than 10% of your yearly income.
Make sure to take lots of pictures. Keep bills from repairs. Save papers from your insurance company too.
If the president says your area had a big disaster, you get special help. You can wait longer to file your taxes. You can also choose which tax year to claim your losses.
Points and Closing Costs
When you buy a home, you pay special fees called points. These points are like paying interest ahead of time. You can save money on taxes by claiming these points.
If this is your main home, you can often claim all the points at once in the same year. This helps lower how much tax you have to pay.
For a vacation home, you need to spread out the points over many years. Think about when you want to close on your home to get the most tax savings.
Deducting Loan Origination Fees
Taking out a home loan comes with some costs you pay at the start. These costs have names like loan fees and points. The main fee is often between $500 and $1,000 for every $100,000 you borrow.
Good news – you can lower your taxes with these fees! You list them on a tax form called Schedule A. But you have to pick this way of doing taxes instead of the simple way.
The tax office lets you cut these fees from your taxes in the same year you pay them. You can even claim them if the home seller paid the fees for you.
But you can't claim other costs like home checks or insurance.
If you redo your home loan later, you have to split up the tax break over all the years of your new loan. You can't take it all at once like before.
Points Save Tax Money
When you buy a house, you can save money on taxes by paying points. Points are extra money you pay upfront to get a lower interest rate on your home loan. Think of points as paying some interest ahead of time.
For your main home, you can subtract all the points from your taxes in the same year you pay them. Each point costs 1% of your total loan.
If it's for a second home or if you're getting a new loan for your current home, you have to spread out the tax savings over many years.
To get the tax break, make sure your home papers show the word "points" clearly. Keep all your papers safe to show the tax office when needed.
You'll need to list these points on a special tax form called Schedule A.
Timing Your Closing Deductions
When you buy a home, the time of year matters for your taxes. If you close in December, you can claim tax breaks right away. You can write off things like loan fees, house taxes, and what you pay in loan interest.
Even if you only owned the home for a short time, you still get these tax breaks for the full year.
But if you wait until January to close, you have to wait a whole year to get these tax breaks. Look at your money and bills to see if December or January is better for you.
The IRS has rules about how much you can write off for house taxes and loan costs. Pick the month that helps you save the most money on your taxes.
Home Business Expense Claims
When you run a business from home, you can save money on taxes by claiming some of your home costs. You just need a special room or space where you do your work and meet with people who buy from you.
You can claim these costs:
- All the money you spend just on your work space
- Some of your power, water, and home fix-up bills
- A bit of money each year as your work space gets older
- Work items like desks, chairs, and computers you only use for work
- Part of what you pay for your house loan and house taxes
To know how much you can claim, measure your work room. Then see how big it's compared to your whole house.
Keep all your bills and papers safe. You might need to show them later to prove your costs.
Property Depreciation Benefits
Your home gets older and wears down over time, just like your favorite toys. The good news is you can get money back on your taxes for this wear and tear. Think of it like getting a small refund each year for 27.5 years.
If you work from home, you can get back even more money. Let's say you use one room out of five rooms for work. That means you can get money back for that one room.
To find out how much you can get back, add up what you paid for your house and any fixes you made. Then take away what you paid for the land. This gives you the amount you can use to get money back on your taxes.
