There are a lot of amazing perks you get to take advantage of when you own your home. You finally get to paint your walls the perfect shade of grellow and you also get to put your money towards a tangible asset rather than paying rent. As a homeowner, you’re also entitled to several potential tax deductions, which can equal major savings on your bill to Uncle Sam (or even better, a bigger return check). To help get you started, check out our list of the three most common tax deductions available for homeowners. Just be sure to consult a qualified tax preparer or accountant to confirm your eligibility for each deduction.
The average property tax rate in California might be low compared to other parts of the country (0.81% compared to the national average of 1.1%), but the actual amount you end up paying is probably more than most other Americans because property values are higher. Take advantage of potential tax savings by claiming your property taxes as a deduction. You should receive a document from your loan servicer at the beginning of each year with applicable tax information, including the amount of interest you paid and the amount of property tax you paid, since the latter most likely came from your escrow account.
Do the math: Your San Francisco condo is assessed at $833,000. The city’s real estate tax rate is set at 1.1792%. That means you paid about $9,822, a huge help in reducing your taxable income.
Private Mortgage Insurance
Deducting mortgage insurance is a great opportunity for a lot of taxpayers, but unfortunately it comes with income restrictions. Once your adjusted gross income (AGI) hits $100,000 as a married joint filer, your deduction is reduced (the maximum for a single filer is $50,000). You can’t receive any PMI or mortgage insurance premium deduction if your AGI is over $109,000 for joint filers or $54,500 for single filers. It’s a convenient way to save if you qualify. FHA loans, for example, charge 1.75% of the loan amount each year — that adds up to $6,125 on a $350,000 high-cost loan. Ask your accountant what deductions contribute to your adjusted gross income to determine if you’re eligible for this deduction.
Watch out: This deduction is set to expire after the 2016 tax year. There’s also the chance that it will be renewed, but don’t count on it after filing this year’s taxes.
In addition to deducting mortgage interest, you might also be able to deduct any mortgage points you paid when you purchased or refinanced your home. One point refers to a percentage point of the home loan amount, and are typically applied as origination and discount fees. But your individual situation determines whether you can deduct the full amount at once or whether you need to spread out the amount over the life of the loan. There are a number of criteria to meet in order to qualify for deducting the full amount upfront so it’s important to consult a tax professional. Either way, you can see some strong savings as a homeowner.
Maximizing your tax deductions is a great way to save money when it comes time to file. Remember all of your applicable homeowner deductions so you can get the most out of this tax season.