We’re loving these money-saving new homeowner tax breaks
Amidst all the hustle and bustle of choosing, buying, and closing on a house, we’re going to bet you forgot all about the pot of gold waiting at the end of the rainbow. Or rather, the tax breaks that could be waiting for you once tax season rolls around.
Here’s a cheat sheet of the biggest tax deductions many taxpayers can take advantage of after buying a new house:
1. Mortgage interest payments. This one’s a biggie, which is why we’re keeping it at the top of the list. As confirmed by TurboTax for the most recent tax year, buying a house is a big investment, but the tax deductions on the purchase may be large enough to lower your tax bill “substantially.” Interest payments on a residential mortgage (as well as mortgage interest on a second home) may be fully deductible, in most cases.
2. Loan points. Another major new homeowner deductible may include settlement charges for loan points. One point is equivalent to 1 percent of your loan and counts as paying interest upfront. If you paid these points, along with a loan origination fee, you can deduct them in your taxes for the year of purchase. Paying these fees will also help you get a better rate.
3. Moving expenses. Moving to a new home because of a job transfer or change may qualify you for a moving expense deduction, in most cases. To get the break, the distance between your old home and new job must be at least 50 miles more than the distance between your old home and your old job. If you qualify as a homeowner (or renter), you’ll get to deduct the cost of moving your belongings and the expense of moving you and your family, including lodging but not meals.
4. Home office. If you bought a bigger home for just this reason — to have some extra work space to keep records, schedule appointments, or conduct business — you’re in luck. You could qualify for a deduction on some common household expenses, including utilities, repairs, cleaning, insurance, and depreciation, based on the square footage of your home office. This break often counts even if you do most of your work at another office location.
5. Gains. Selling one home and buying another means you might be able to protect the profits on the sale of your home, as long as it was used as a principal residence for any two of the last five years. You may be able to protect up to $500,000 in tax-free profit when filing federal taxes jointly or $250,000 when filing single. This added bonus of tax-sheltering the profits on the sale of your home may be available to you once every two years.
6. Home equity loans. If you’ve borrowed against the value of your home, including a second mortgage or equity credit line, there could be a tax break for that too. Based on the most recent IRS tax code, interest may be fully deductible on a home equity loan up to $100,000, no matter what you’re using the money for. The fine print is that, when added to any other debt secured by the residence, your home equity loan must not exceed 125 percent of the fair market value of your house.
7. Debt payoff. Speaking of a home equity loan, did you know that credit card and car loan interest generally isn’t tax-deductible? Most homeowners can get a bigger tax break by using a home equity loan to pay off this personal debt — and then deducting the interest.
*Please check in with your tax advisor to confirm if you qualify for any of these tax deductions.