Tax Deductions for the New Homeowner

If you became a homeowner this year, you will have some tax deductions to take advantage of when you file your tax return. Tax time will be here before you know it so it’s important to get started early. Though what seemed like an endless search with Carolina Plantations for that new home, your taxes will show the benefit of you taking the leap into homeownership. You should ask your accountant or tax advisor about all the homeowner tax deductions you are entitled to, because tax laws vary and some are more advantageous to your bottom line than others.

Here’s a list of some basic deductions to ask about just to get you started in the right direction:

Property Tax

One deduction available to you as a homeowner is for real estate property taxes you paid on your home during 2016. Your mortgage provider will send you a tax statement that shows the amount of property taxes you paid through the escrow account that they manage for you. The year-end statement should show the grand total for property taxes paid.

Mortgage Interest

Homeowners can also take advantage of a mortgage interest deduction, which is claimed on the Schedule A. To get the mortgage interest deduction, your mortgage must be secured by your home. Interest you pay on a mortgage of up to $1 million, or $500,000 if you’re married filing separately, is deductible when you use a loan to buy, build, or make improvements to that specific home.

Prepaid Interest

Your lender should send you a Form 1098, which is used to document the points that you paid for your loan. If you did not receive this form, you can locate the dollar amount you paid on the HUD-1 settlement sheet, which you received when you closed on the purchase of your home.

Usually prepaid interest (or points), which you may have paid at the time the mortgage was taken out, are usually 100{273583cfc581702b9b29d53e7767e779614a2427f9fcf163ae51dfa4952ef47e} deductible in the year you paid them.

PMI – Mortgage Insurance Premiums

If you itemize your return, you can deduct the cost of private mortgage insurance (PMI) as mortgage interest. Essentially, you can treat the amounts you paid during 2016 for qualified mortgage insurance as home mortgage interest when you file. The insurance must be in connection with home acquisition debt, and the insurance contract must have been issued after 2006. Speak to a tax professional to determine if this applies to you.

Energy-Efficiency Updates

All of those improvements you made to your home in 2016 that provided for greater energy efficiency might qualify for the residential energy tax credit. The credit is filed on the IRS form 5695 with your tax return. This credit has a lifetime cap of $500 (less for some products), so if it is a deduction you have utilized previously, you’ll have to subtract prior tax credits from that $500 limit.

Following are some energy improvements that may qualify you for the tax credit:

  • Insulation
  • Windows, doors, and skylights
  • Roofs (metal and asphalt)
  • Heating, ventilation, and air conditioning
  • Water heaters (non-solar)

All of us at Carolina Plantations wish you and your family a very Merry Christmas and a Happy New Year!

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