It feels good to be a homeowner, and you re going to feel even better when you take advantage of the tax cuts that are only available to homeowners. The shifting economy of the past year or so has created additional tax deductions. Plus, increasing ecological concerns have resulted in some green tax benefits you can look into.
Claiming these deductions means you most likely will have to itemize on your tax return no more short forms for you! But they net you enough money to make itemizing worth the cost. Just be certain to keep all of your receipts throughout the year.
One of the primary tax advantages that has been and always will be around is the deduction of interest you pay on your mortgage each year. For those unaware of how your mortgage is structured, when you buy a home and decide how many years you want to pay it off, the lender figures out how much interest you will owe them by the end of those years. In the early years of home ownership, most of your monthly mortgage goes toward interest. And, it s tax deductible.
You should be aware of limitations. For example, you can generally declare this interest for first and second mortgages, refinanced mortgages, or home equity loans, as long as the total value of the mortgages does not surpass the fair market value of the home.
First time home buyers in 2008 and 2009 can take huge tax credits of up to $8,000. Basically these applied to purchases made between April 8, 2008, and December 1, 2009. As the government persists in its efforts to stabilize the economy, check to see if this credit is extended beyond 2009, or find out whether you can claim it for a property that closed after that date by filing an extension.
If you bought your home early in 2009 when the government offered a $7,500 tax credit that had to be repaid, you can file an amended return to qualify for the $8,000 tax credit that does not have to be repaid.
The state and local real estate taxes you pay are deductible. Be careful to include only those taxes that apply to your home. For instance, you must exclude local employment taxes.
You can also deduct mortgage points paid when you financed your home. There is a list of qualifications, available in IRS Tax Topic 504 paying the points must be usual practice in your community; points charged cannot be excessive; points are calculated using the principal amount of your mortgage, and so forth.
The first year you buy a home, you can take a big deduction from the sales taxes you pay. These include the state and local taxes you paid for the cost of your home, as well as items you purchase to build or maintain the home.
Most people take a deduction for general sales tax paid throughout the year based on their adjusted gross income. But if this is a year when you acquired several major appliances for your new home, you might want to take the deduction for these big ticket items. Just be certain you have receipts! This includes taxes you spend on materials to maintain existing value of the property such as repairing the sidewalk but not to improve the value of the property.
If you install energy saving features such as solar electric or water heating, small wind energy, a geothermal pump, or small wind energy pump, you can take a deduction. This must be on your residence and not on business property.
Last but not least, be certain to document valuables within your home. Not only will you need this for your insurance, but in the event of a theft or catastrophe you can deduct the loss if it exceeds a percentage of your adjusted gross income by $500. Check tax laws in effect at the time for the exact qualifications.
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