Tax season can be intimidating to prepare for. With all the documents to sort through and either a tax return or money due upcoming, there are a lot of moving parts to consider. Let’s walk through what you need to do as tax-day approaches.
Start Organizing your Records for Tax Season
- Prepare your personal information, like last year’s taxes and social security numbers for you, your spouse, and dependents.
- Keep track of all forms that arrive in the mail in January, such as W-2 forms, 1099 forms and mortgage interest statements (Form 1098).
- Gather all the applicable tax forms. You can find a comprehensive list at the IRS website.
- Itemize your tax deductions and prepare the necessary documentation.
- Compared to taking the standard deduction, itemizing your deductions can maximize your refund if you are self-employed, own a home, or live in a high-tax area, according to TurboTax.
- Among the common deductions like retirement contributions and charitable donations, there are specific deductions related to home ownership. Let’s walk through them below.
- *Keep in mind, these deductions will require you to have documentation of your expenses. Be sure to gather these records prior to filing.
Tax Breaks for Owning Real Estate
Owning property may qualify you for a variety of deductions. Let’s see what tax breaks could become available to you after buying a home.
- Mortgage interest and real estate/property taxes
- Be on the lookout for Form 1098 – this will highlight all the interest you paid since closing on your property. For tax years after 2017, you can deduct interest on up to $750,000 of debt, according to TurboTax.
- Discount points
- If you had to pay discount points to your mortgage lender, typically an upfront payment of a percentage of your loan amount, you may qualify for a deduction.
- Mortgage insurance premiums
- If you made a down payment of less than 20%, you likely had to sign up for mortgage insurance. In select cases, you can deduct this insurance premium.
- Home improvements
- If you are thinking ahead, be sure to keep receipts for all improvements you make to the property. In some cases, when you sell your home later down the line, you may be able to reduce the taxable gain by including improvements in the cost basis of the house, according to TurboTax.
- Energy credits
- If you’ve added energy saving improvements to your home, you could be eligible for an energy tax credit up to $500, according to TurboTax.
- Home office expenses
- This only kicks in if you are self-employed, but if you operate a business out of your home, you may be able to deduct some of the expenses related to maintaining the space. Keep in mind the size of the deduction is based on the percentage of your home dedicated to your dedicated office space, and that you must use this space regularly.
There are several benefits to owning your own home, some are the tax perks that are commonly associated with homeownership. It’s essential to see what money you can save and compare to what automatically comes with the standard deduction. Contact a local tax professional to learn more about the specifics of tax deductions and what you need to prepare.
Interested in learning more about the home buying process? Here are some additional resources:
*THIS INFORMATION IS NOT INTENDED TO BE LEGAL OR TAX ADVICE AND THE INFORMATION THEREIN CAN CHANGE WITHOUT NOTICE. ALWAYS REFER TO AN ATTORNEY OR TAX PROFESSIONAL FOR THE MOST CURRENT INFORMATION.