Now that W-2’s are landing in your mailbox it is a good time to talk about how homeownership can improve your tax position. Most homebuyers don’t think about how they might save on their federal taxes when they purchase. I have always counseled homebuyers to explore how the tax benefits of home ownership will allow them to afford a monthly mortgage payment higher than their rent payment.
For your 2022 taxes, you have the opportunity to deduct your mortgage interest payment if your total deductions are $25,900 for joint filers or surviving spouses, and $12,950 if you are a single filer or married and filing separately, or $19,400 for heads of household. You can deduct the interest you pay on your mortgage every year from the taxes you owe on loans up to $750,000 as a married couple filing jointly, or $350,000 as a single person.
For property taxes you can deduct up to $10,000 each year but the limit includes state and local taxes you may want to deduct.
In addition you can deduct points paid at closing in that year and mortgage insurance premiums. You may be able to deduct state and local taxes, medical expenses and charitable donations.
There are other tax benefits you can realize as well. If you are self-employed and work from home you can deduct home office expenses such as a share of mortgage interest, insurance, utilities, repairs, maintenance and depreciation. As an example, if you have a 1500 sq ft home and your office takes up 150 sq ft you can deduct 10% of your eligible expenses. If those home expenses total $10,000, you get a $1,000 deduction.
If you take out a home equity loan (HELOC) to improve and upgrade your home, then you may deduct the interest you paid on it only if you use the money for home improvements.
Certain necessary improvements may be tax-deductible. If you must update your home for medical or accessibility reasons for you, a spouse, or a dependent who is disabled, the expenses may be deductible.
There are also lots of ways to save on taxes if you go green. Qualifying new systems that use solar, wind, geothermal, biomass or fuel cell power to produce electricity, heat water or regulate the temperature in your home can be eligible for a 30% savings. A fuel cell equipment credit is available up to $500 for each one-half kilowatt of capacity. For the 2022 tax year, you can take up to $500 off your tax bill by installing energy-efficient insulation, doors, roofing, heating and air-conditioning systems, wood stoves, water heaters, or the like. The credit is worth up to $200 for new energy-efficient windows. The $500 general cap and the $200 maximum for windows are lifetime credit limits (e.g., credits taken in previous years count towards the limit). There are also other individual credit limits for advanced main air circulating fans ($50), certain furnaces and boilers ($150), and energy-efficient building property ($300).
Most people know that tax credits are available for the purchase of electric cars. There’s also a credit available for installing electric vehicle recharging equipment at your home. The credit is worth 30% of the costs of the qualifying equipment, up to $1,000.
Please note that we are not tax experts and the information above is meant to help you explore what tax benefits you might qualify for. It all starts with determining if you should use the standard tax deduction method or make the deductions if you qualify. Check with your tax advisor or go to https://www.irs.gov/individuals. Of course, if you have any questions about real estate, please reach out.