It’s important you speak to your accountant about the tax benefits below. Laws change which affects whether or not a homeowner can still claim deductions. The deductions are also different for married and unmarried people.
- Mortgage interest
- Property tax
- Energy tax credits
- Home improvements
- Tax-free profit on sale
- Home equity lines of credit
The website where you pay your mortgage online will have a form called 1098, which reports the amount of interest you paid during the year. You will submit this with your tax return.
You may be able to deduct points
Points are essentially prepaid interest that you offer upfront at closing to improve the rate on your mortgage.
You can deduct PMI (private mortgage insurance)
You can deduct your property taxes on your primary and vacation home.
If the home is your primary residence you will receive a tax deduction. Homestead exemption can remove up to 20% of your home’s value from taxation, which lowers your taxes. You only need to apply once. The value of your home is determined by the County. The tax rate is different throughout Austin. You’ll take the County’s appraised value and multiply that by your tax rate. You will get a letter from the County each year with information about your property value and taxes.
Energy-efficiency tax credit
If you installed equipment to make your home more energy efficient like energy efficient windows, insulation, air-conditioning and heating systems, the IRS wants to give you a tax credit.
Renewable-energy tax credit
If you’ve installed equipment that uses renewable sources of energy, such as the sun and wind, to help power your home, you are eligible for this tax credit up to a 30% of the cost of the equipment. The credit is subject to change
You’ll get capital gains tax relief down the road
You can avoid paying tax on up to $250,000 of gain ($500,000 for married filing jointly) so long as you have owned and lived in the property for two of the last five years (don’t have to be consecutive).
Home expenses and improvement
You cannot write off the cost of home improvements, such as the materials and the labor. However, when you sell your home, you can add the cost into the asking price of your property, which should diminish the capital gain when you sell your home.
Tax Deductions on Home Equity Lines
In addition to your mortgage interest, you can deduct the interest you pay on a home equity loan (or line of credit). This allows you to shift your credit card debts to your home equity loan, pay a lower interest rate than the horrendous credit card interest rates, and get a deduction on the interest as well.