Know the Tax Benefits of Homeownership

Being a homeowner requires responsibility. Owning a home comes with yard work, repairs, insurance and of course, figuring out your taxes. With tax season in full swing now is a good time to review what tax benefits are available to homeowners.

If you’re not already aware, a Realtor^® can tell you about the significant savings that comes with owning a home. Especially now when many families are struggling financially and the economy is still recovering, the tax benefits that come along with being a homeowner are a welcome relief to many. Owning a home is one of the best ways to build financial security over the long term, providing both equity accumulation and tax benefits over time.

One of the most notable tax benefits associated with homeownership is the mortgage interest deduction. The MID allows homeowners to deduct the interest paid on a mortgage debt of up to $1 million on a primary residence and one additional residence.

The ability to deduct the interest paid on a mortgage can mean significant savings at tax time. For people who don’t have hundreds of thousands of dollars in savings to buy a home outright, tax benefits like the MID help them begin building their future through homeownership.

Another tax benefit allows sellers to exclude certain capital gains from the sale of a principle residence. Couples who file a joint federal return can exclude from taxation up to $500,000 of any gain in their home’s value. Singles can exclude gains of up to $250,000.

The American Taxpayer Relief Act of 2012, which was signed into law in January 2013, also extended two important tax incentives for homeowners, which had expired. One is the deduction for mortgage insurance premiums. Homeowners with incomes of no more than $100,000 can deduct their mortgage insurance premiums if they were required to obtain insurance as a condition of receiving financing for the home.

The other provision is a credit of up to $500 for making certain improvements that increase a home’s energy efficiency. The tax credit included costs related to buying and installing certain products such as a new water heater, central air conditioner, insulation, windows or roof.

To learn more on homeownership and tax tips visit www.houselogic.com.

Collecting on Energy Tax Credits in 2011

While it may not be as much as years past, down from $1,500 to $500, this year’s energy tax credit is still better than nothing. One benefit of the credit is that it counts for more than a deduction, as each credit is matched dollar-for-dollar with a tax liability reduction.

However, some limits do exist with the credit, including the 10% match. This means that you can earn a credit worth only 10% of the total cost. Also, the new $500 limit is for a lifetime. If you have already claimed $500 in lifetime energy credits, then your tax credit is maxed out.

Even with a lower limit, the energy credit covers several home improvements including:

o Biomass stoves

o Heating, ventilation, air conditioning

o Insulation

o Roofs (metal and asphalt)

o Water heaters (non-solar)

o Windows, doors, and skylights

o Storm windows and doors

The tax credit may also cover the labor on the improvement. Installations of biomass stoves, HVAC and non-solar water heater are all covered, while window and roofing installations are not.

To get the credit on your new home improvement, make sure Energy Star qualifies the improvement, keep receipts of the purchase, and include IRS Form 5695 with your taxes.

For a full list of information regarding the tax credit, please consult the IRS, your tax preparer, or a qualified expert. The preceding information is not intended to be tax guidelines.