Owning a home is a goal shared by many, but the cost of doing so can be significant. Even after you have bought your home, you will have to pay additional taxes on an annual basis. The good news is that there are many deductions available for your home taxes that can end up saving you a lot of money in the long run.
Before you file your taxes each year, be sure to sit down and do some research. Find out about any changes in the tax code that have been made. If you are unsure about any particular deduction, it is a good idea to talk to a tax expert who can advise you on the best course of action.
The most common deduction related to home ownership is the mortgage interest deduction. Each year, you are probably paying thousands of dollars of interest on your mortgage. Your lender will send you a 1098 form each year that shows how much interest you paid in the previous year. This can potentially reduce your taxable income by several thousand dollars or more.
Any points that you pay when you purchase your home can also be deducted from your taxes. As long as your down payment was equal to or greater than the points, you will qualify for this deduction. For instance, if you took out a $200,000 mortgage and paid 3 points, this would be $6,000. So long as your down payment was more than this amount, you can deduct this from your taxes.
Every year, property owners have to pay taxes on the value of their real estate. In most cases, you will be able to deduct the amount of property taxes that you paid from your taxable income. If you pay your taxes in person, be sure to keep a record of this amount. If you pay via an escrow account, your lender will send you a form listing the total amount that was paid.
Have you made any significant improvements to your home during the last year? If so, you may qualify for a tax credit that will reduce your taxes. Energy-saving improvements, such as more efficient doors and windows, a new furnace or air conditioner, or even a new roof, may qualify.
Because this is a tax credit, rather than a deduction, it will save you even more money. A tax deduction reduces your taxable income, while a tax credit reduces the amount that you owe. You may be able to save up to $500, depending upon the amount that you spent on these improvements.
Every year Congress makes changes to the tax code. Your state and local governments will do so as well. It is important that you remain aware of these changes so that you can properly plan your finances for the next year.
Keeping your home taxes as low as possible may seem challenging. A qualified tax professional or financial planner can help you make sure that you do not pay more than you have to.