Tax Deduction Tips for Homeowners
The fiscal year is at an end and tax season is just around the corner! Every year, many homeowners miss out on discounts and deductions; taking advantage of these deductions can help you save money come tax time.
The following tax tips can help you make the most of your deductions and maximize your refund this tax season.
- Stay organized
The majority of the homeowner-related deductions require detailed records. Save receipts and other information from any upgrades or additions you make to your home during the year.
“If you take a few minutes to set up an organization system for your tax paperwork and financial records, it should be quick and easy to maintain,” Zimmelman says.
- Decide whether to itemize or not
For the 2019 tax year, the standard federal deduction for married filing jointly was $24,400, was $18,350 for head of household, and was $12,200 for single or married filing separately. If you decide to itemize your deductions when filing taxes, there are a number of homeownership-related deductions that could add up to more than the standard deduction. Eligible expenses include:
- Home mortgage interest
- Local and state taxes
- Charitable contributions
- Medical expenses
- Track home office expenses
If you are self-employed and work from home, you may be able to deduct some of the expenses from your taxes. This could include electricity and internet costs, office supplies, and even depreciation of the home. However, not every employee or business is eligible for this deduction.
“Not every person who works from home can claim a home office,” Zimmelman says. “The home office must be used regularly and exclusively for business and be the primary site of the business.”
Keep in mind that employees of another business who work from home, even if they work from home exclusively, are not eligible for this deduction.
- Make energy efficient upgrades
The government has offered a number of tax incentives over the years to encourage homeowners to make energy efficient upgrades. The only current tax credit available is for installing a new solar energy system. The IRS allows homeowners to take a tax credit worth 30% of the total cost of installing the system. Thinking about installing solar panels? Don’t wait too long as this deduction is set to expire in 2021!
- Save your tax records
Taking advantage of deductions for your home? Don’t forget to save the paperwork! Federal law requires that homeowners keep the records used for filing their tax returns for three years, which is typically how far back the IRS goes when conducting an audit. However, the IRS may go back as far as six years if substantial errors are found.