Owning a home is exciting, gives you a sense that you have “made it”, but that soon wears off as the constant home improvements start to kick in. While you start to contribute much of your take home pay towards your new home, at least make sure you take advantage of a few tax breaks to net you a little more in your pocket during tax season.
If you wonder what most of your monthly mortgage payment goes to, take a look at your account statement and you will see that a majority goes to interest and little goes to principal. As the years go by, less and less will go towards interest, but the good news is at least you can write-off mortgage interest. Your lender will send you a 1098 form that will show the total interest paid for the year. It might make you sick.
Also on the 1098 statement from your lender you will find what you paid in property taxes for the year, and this can also be deducted on your tax return. The trick is you will have to itemize, but given that you have not added a few extra deductions by being a homeowner, you will most likely benefit from itemizing. If you have purchased the home throughout the year, you are able to deduct the taxes paid from the date of the sale on.
Energy Efficient Upgrades
Good news and bad news for this beneficial deduction. The good news is that deduction for energy-efficient improvements will return you 30% for installation renewable energy sources, or 10% back for energy-efficient products purchased between $50 and $500. Now for the bad news. Hopefully you had plenty of upgrades completed in 2016, because the credit expires as 2017 begins, so anything completed this year will not be able to be deducted going forward. For those receipts that you do have for 2016, you will include in the 5695 form.
Home Office Deduction
With so many companies allowing work-from-home, you can not only take advantage of avoiding getting dressed for work and sitting in rush hour traffic, but get a little back on your tax return. The simplified method would be to take the square footage of your home office and get a calculated deduction. The regular method would be to figure out what percentage of the home office takes up the total home expenses. Will be easier to use the simplified option, just be sure that you can prove you use the home office for 100% of work use.
Donations to Charity
Although you do not have to own a home to get a donation to charity credit, but I wanted to make sure I included to be sure that you do not forget this, especially if you owe taxes this year. If you have had any life changes such as marriage or buying a house it can take a year or two to figure out your optimal tax situation (per paycheck tax payments or getting too little or too much tax return).