Your home is your castle, and it is also a source of tax deductions. Yet, every year, Americans let these potential tax deductions pass by, not realizing how to take advantage of them.
IRS Publication 530, titled "Tax Information for Homeowners", can fill you in on the deductions that are available to you for the 2015 tax year. Several of the most important tax benefits are listed below.
Mortgage Interest – This should be the largest home-related tax deduction that is available to you unless you purchased your home in the 2015 tax year. You can deduct interest payments on either primary or secondary homes, up to the limit of $1 million in collective mortgage debt if married and filing jointly. The limits are cut in half for single filers or married couples filing separately.
The mortgage interest deduction applies to anything that meets the definition of a basic living space that you own. Condominiums, mobile homes, and even boats are included assuming that they meet the living space definition with at least one sleeping area, a kitchen, and a toilet. Details may be found in IRS Publication 936, "Home Mortgage Interest Deduction."
Points – Any points that you paid at closing to lower the interest rate on your mortgage are deductible. Generally, the deductions must be amortized over the life of the mortgage, but there are circumstances where you may be able to deduct the entire amount of your points paid in the year of purchase. See Publication 530 for details.
Property Taxes – You can deduct real estate taxes that are assessed uniformly (no taxes that reflect a special privilege or a service granted to you). Property taxes associated with the purchase of a home may also be deducted.
Mortgage Interest Credit – Typically, mortgage interest is taken as a deduction. However, if you have a qualifying low income, you can claim mortgage interest as a credit instead. This subtracts the total directly from your tax bill instead of from your taxable income used to determine your tax bill. To claim this credit, you must have received a qualified Mortgage Credit Certificate from a suitable state or local agency. File Form 8396 along with your tax form to claim your credit.
Home Equity Loans – When you borrow against your home equity, either with a loan or a line of credit (HELOC), the interest may be deductible depending on how the loan is used, the amount of the loan, and the value of your home.
Forgiven Mortgage Debt – When a bank decides to accept a short sale for less than the value of a home and forgives the rest of the debt, that debt is usually considered as taxable income. In 2007, Congress created the Mortgage Forgiveness Debt Relief Act to reclassify the forgiven debt as non-taxable income, saving already distressed homeowners from a huge tax burden. This temporary tax relief measure is still in effect.
This benefit has been giving home sellers heartburn for years now, thanks to the Congressional habit of allowing it to expire and saving it at the last minute in the inevitable omnibus spending bill. In 2015, the Mortgage Forgiveness Debt Relief Act was extended at the last minute to cover mortgage debt cancelled through the end of 2016. Debts cancelled in 2015 (applicable to the 2015 tax year) are also covered retroactively.
Check the IRS publications and see if any of these valuable deductions apply to you. Take advantage of every deduction that you can. Otherwise, the government simply keeps more of your money.
This article was provided by our partners at moneytips.com. More from moneytips.com.
Home Office Tax Deductibility 101
More Parents Are Helping Their Kids Buy Homes
Where Can Millennials Afford to Live?
