As we approach the final few weeks of tax season, you will want to ensure you are fully prepared for April 15. If you are a homeowner, make sure you familiarize yourself with the breaks Uncle Sam provides. Know how buying a new home and completing renovations and upgrades to your house throughout the year may assist you this tax season.
Home improvement tax incentives
If you recently had a home inspection and found you needed to upgrade features such as your roof, heating and cooling system or windows and took out a loan to hire a contractor, you may be able to write off the interest, according to MarketWatch.
In addition, you may qualify for tax deductions if you invested in energy-efficient home improvements. Kiplinger noted installing alternative energy equipment, like geothermal heat pumps, can qualify you for up to 30 percent of the total cost of installation and equipment in tax credit.
Energy.gov noted The Energy Policy Act of 2005 and The Energy Improvement and Extension Act of 2008 allows taxpayers to access tax credit for the following features:
- Solar water heating systems
- Fuel cells
- Solar-electric systems
- Small wind-energy systems
Eligible equipment must be serving its purpose by the end of December 2016. Each feature may have varying requirements to qualify for tax credit incentives. For example, geothermal heat pumps have no maximum credit for systems in service after January 1, 2008 or before December 31, 2016. The geothermal system must abide by the federal Energy Star requirements. Check out the different feature requirements to determine whether you can access a tax benefit for your environmentally-friendly upgrades.
Purchasing a new home
Investing in a new home also can qualify you for additional tax benefits. The Internal Revenue Service indicated first-time homebuyers may earn credit if they recently bought a house. To qualify, your recently purchased home must be your primary residence and the year of your purchase determines your eligibility.
Those who qualify may receive a reduced tax bill or a larger refund.
In addition, MarketWatch noted mortgage interest may entitle you to some tax breaks. You may be able to write off the points affixed to the interest you pay on your loan.
"You have to meet all the criteria in order to deduct them up front, otherwise you have to amortize them over the life of the loan," Jackie Perlman, principal tax research analyst at H&R Block told MarketWatch. "A good place to start, she says, is the IRS Tax Information for Homeowners guide."
Refinancing your home
Applying for another mortgage may also qualify you for a tax break. Just as you get there is a tax incentive when applying for your first mortgage, refinancing may also allow you to write off a few of those extra expenses.
The IRS allows you to deduct certain expenses when filing your taxes. Eligible "property taxes are those based only on the value of personal property such as a boat or car. The tax must be charged to you on a yearly basis, even if it is collected more than once a year or less than once a year," according to Topic 503.
Ensure you correctly identify which property taxes you are allowed to write off when completing your taxes. If you go to a professional, bring your settlement document for easy reference.
Private mortgage insurance tax deduction
If you purchased PMI when you bought your home, you might qualify for a tax deduction. However, your deduction total is also contingent upon your adjusted gross income. If you made more than $100,000 you may not see as substantial of a reduction and if you made $109,000 or more, you do not qualify at all.