Building or buying a home is a huge step forward as you begin building equity in an investment instead of paying rent. Claiming your tax breaks can be a great way to offset the additional expenses of homeownership. The extra write-offs from owning a home will make you an itemizer. If you’re considering buying a house, make sure you understand how your tax returns may be affected. Here’s a breakdown of the top 5 new homeowner tax deductions.
The ability to deduct your mortgage interest on your taxes continues to be the biggest benefit of homeownership. The mortgage interest deduction rules have changed to some extent thanks to tax reform. The interest paid throughout the year is deductible on your taxes for mortgages of up to $750,000, which is a combined total for first, second or any other home. This new limit applies to mortgages acquired after 2017. At the start of the tax season, you’ll receive a Form 1098 from your lender indicating the specific amount of interest you ought to pay throughout the year.
Property taxes can be deducted as part of the state and local taxes and could spell large savings, especially if you live in an area with high property taxes. Starting 2018, the total deduction for your property taxes will be limited at $10,000 per tax year. The taxes are built into your monthly payment, and you can deduct only the actual property tax amounts paid out during the year. The deductions will no longer be separate, and new homeowners can take one deduction that consists of property tax as well as income taxes and state and local sales.
Adding energy-efficient solar electric and solar water heating equipment to your home can earn you an additional tax break in the form of an energy tax credit. The percentage of credit varies depending on the date of installation. If you install the equipment between Jan 2018 and Dec 2019, 30 percent of the expenditures qualify for the credit. The credits are available through 2021 but will go down 26% for equipment put in 2020 and then to 22% for installations done in 2021. This credit is more valuable than a deductible since it reduces your tax bill dollar-for-dollar.
If you work from home and will have an office space in your new home, you may be able to deduct costs for space on your itemized tax return. Last year, homeowners could work for themselves or an employer, but deductions in 2018 are limited to self-employed individuals who work predominantly from their home office. Your home office can’t be in any space used for a dual purpose, and it must be used regularly. You can take a deduction of $5-per-square-foot for an office space that’s up to 300 square feet.
Penalty-free IRA Payouts
A further incentive for first-time home buyers is a penalty-free IRA payout for those who break into their IRAs for the down payment. However, this exception does not apply to withdrawals from 401(k) plans. Typically, you can withdraw up to $10,000 from your IRA penalty-free to help buy or build a first home, but the limit is a lifetime cap. To qualify for the penalty-free payout, you must use the money to buy or build your first home within 120 days of the time you withdrew.
Prospective New Homeowners Can Turn to Us for Help
It pays to keep these tax deductions in mind as you prepare to become a new homeowner. Liberty Homes will work with you to build or buy a new home in the Salt Lake City area. We deliver beautiful, quality homes from an experienced builder. From the smallest details to the biggest decisions, you have the freedom to personalize finish work, colors, floor plans so you can build a new home in Utah that’s unique to your family, doing it your home, your way. Feel free to browse the current communities and floor plans.
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