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Tax Tips Every Homeowner Needs to be Using This Year

Larry Alton

Whether you purchased your first home last year or have lived in the same home for the past 20 years, being a homeowner comes with a number of tax-related advantages. It also means you have more responsibilities and intricacies to keep an eye on. Let’s walk you through some of the top things you need to be aware of when filing taxes this year.

1. Mortgage Interest

For first-time homebuyers, one of the primary benefits comes from being able to deduct mortgage interest. The IRS allows you to deduct interest on up to $1 million of debt used to acquire your home.

You should receive a Form 1098 from your lender in January that lists the mortgage interest you paid in 2015. You’ll deduct this amount on Schedule A. Even if the lender doesn’t send you the information on the 1098, you can still deduct it. You can find the total amount listed on the settlement sheet you received at the closing table. 

For those within the 25 percent tax bracket, deducting the interest on your home means the government essentially comps 25 percent of it for you. Not a bad deal – and certainly better than throwing money down the drain with a rental!

2. Property Taxes

Regardless of whether you pay property taxes through an escrow account or directly to the municipality, you can deduct this amount each year. If you purchased the home last year, you likely refunded the seller for the taxes they prepaid. Check your settlement sheet for this amount and include it in your deduction.

3. Points

Some homebuyers pay points to get a better rate on a home loan. If this doesn’t apply to your situation, don’t worry about it. If it does, then you’ll be happy to know you get another tax break.

The IRS will actually let you deduct points in the same year you paid for them, if the loan is used to purchase your main home. There are also a couple of other requirements, so be sure to check these.

4. Tax-Free Sale Profits

Did you make money on the sale of a home last year? If so, the IRS will allow you to shelter a substantial amount of the profit from tax considerations. If you’re single and owned the house for at least two of the five years prior to the sale, you can shelter up to $250,000 in profit. If you’re married and file a joint return, as much as $500,000 of the profit can be tax-free. While there are exceptions, this generally means you never have to pay taxes on the profits from a sale.

5. Second Home Rental Use

Things get a bit more complicated when you purchase a second home and use it to generate rental income. While you can deduct property taxes with no questions asked, there are some more specific rules with how and when you report rental income.

If the property was rented out for 14 days or less – regardless of the amount of income it produced – you don’t have to report the income. However, if you rented the property for more than 14 days, you must report all revenue generated. There are also caveats related to personal use of the property, losses, and more. You can read up on it here.  

Hire an Accountant

As you can see, things can get pretty complicated when it comes to doing your taxes as a homeowner. While there are plenty of resources that claim they can make doing your taxes as simple as pushing a few buttons, the reality is that hiring a professional CPA or accountant is the smart way to go. The fee they charge you will be nothing compared to the savings they find. Do the smart thing and hire an accountant this tax season.