Don’t Miss Out on These 7 Deductions and Credits
Purchasing a home is expensive, especially in today’s real estate market. However, in addition to having a place of your own, there are several tax benefits to homeownership that should not be overlooked. If you own a home, make sure you’re taking advantage of the following deductions and credits.
#1 – Mortgage interest deduction
The mortgage interest deduction allows you to deduct the interest you pay on up to $750,000 in mortgage debt as an individual or married couple, or up to $375,000 for married couples filing separately. If you purchased your home before December 15, 2017, the deduction limit is $1 million for single filers and married couples, or $500,000 for married couples filing separately.1
#2 – Mortgage points deduction
If you paid upfront for points off your mortgage rate when you closed on your loan, you can include this amount with your interest tax deduction.2
#3 – State and local tax (SALT) deduction
You can deduct up to $10,000 ($5,000 if married filing separately) of state and local property taxes in the year you pay them. You can also deduct any state and local income taxes or sales tax paid in the current year. Be aware, however, that you can deduct either state and local income taxes or sales tax, not both. The $10,000 limit applies either to property taxes plus state and local income taxes or property taxes plus state sales tax.3
#4 – Home office deduction
If you use a space in your home exclusively for business, you may be eligible for a home office deduction. There are two methods to calculating your deduction:
- Actual expense – Allows you to calculate the percentage of your home that comprises your home office and add in other costs based on that percentage. For example, if your office takes up 5% of your home, you can deduct 5% of your mortgage interest and utilities. (This method requires you to keep meticulous records of your expenses.)
- Simplified – Allows you to claim $5 per square foot, up to 300 square feet (a maximum of $1,500).
It’s important to note that if you work remotely for a company as a W2 employee, you’re not eligible for the home office deduction.4
#5 – Residential energy credit
This credit allows you to deduct up to 30% of the cost of new energy-saving systems that use solar, wind, geothermal, biomass or fuel cell power to heat water, generate electricity or heat your home. You can also claim a tax credit of up to $500 for installing energy-efficient doors, insulation, heating and air conditioning systems and water heaters and a tax credit of up to $200 for new energy-efficient windows. These are lifetime credit limits, which means any credits taken in previous years count toward the maximum you can deduct.5
#6 – Electric vehicle charging station credit
If you own an electric vehicle, you may be eligible for a tax credit of up to 30% of the cost of charging equipment, to a maximum of $1,000.6
#7 – Deduction for medically necessary home improvements
If you experience a medical condition that requires you to modify your home or install special equipment, you may qualify for a deduction. Examples of qualifying modifications include adding ramps, installing handrails, lowering cabinets, installing an elevator, widening doorways, etc.
The deduction is limited to 7.5% of your adjusted gross income and is reduced by any increase in the value of your property due to the home improvement. For example, if you pay $60,000 to install an elevator that results in a $50,000 increase to your home’s value, you can only deduct $10,000.7
Interested in learning more ways to save on taxes? Creative Planning is here for you. Our teams help clients navigate a wide range of financial and tax planning challenges. For help with your tax planning strategy, schedule a call.
Footnotes:
- https://www.irs.gov/publications/p936
- https://www.irs.gov/taxtopics/tc504
- https://www.irs.gov/taxtopics/tc503
- https://www.irs.gov/newsroom/home-office-deduction-benefits-small-business-owners
- https://www.irs.gov/forms-pubs/about-form-5695
- https://www.kiplinger.com/taxes/605201/federal-tax-credit-for-electric-vehicle-chargers
- https://www.nolo.com/legal-encyclopedia/deducting-medical-home-improvements.html
