Tag Archives: Ben Luthi

Tax Tips For Homeowners That Could Help Reduce Tax Bills

Taxes… There are but a few exercises that help people recall their anger and anxieties better than thinking about their taxes. I personally am a believer in a civil society, and I don’t find it helpful for anyone to complain so much about paying taxes. However, it does hurt each year when I have to pull out my checkbook to pay the remainder of my bill. The last few years I’ve done myself a favor and gotten them done early, and it’s a big weight off of the old shoulders honestly. Maybe it’s a good time to go ahead and start figuring out your taxes, and if you’ve bought a home recently here is a list of things you’ll want to remember. Keep in mind that this was produced by Credit Karma and you should look into any services  that may be advertised or suggested before using them.

-Grady

Tax tips for homeowners

Young couple using a tablet to review their finances in their new home.

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Owning a home gives you access to special tax breaks, and taking advantage of them could help you at tax time.

“Many homeowners miss out on a lot of deductions every year because they aren’t aware of all the savings opportunities available to them,” says Josh Zimmelman, president of Westwood Tax and Consulting.

These seven tax tips could help you make the most of the many tax breaks for homeowners and maximize any income tax refund you may be owed.

1. Stay organized

Many of the tax deductions or credits you can take as a homeowner require you to keep detailed records of your home-related expenses. Start saving receipts and other information right away; don’t wait for tax time to roll around.

“If you take a few minutes to set up an organization system for your tax paperwork and financial records, it should be quick and easy to maintain,” Zimmelman says.

One way is to keep hard copies of all your financial documents and receipts. Or, you can scan and store your documents digitally. Apps like HomeZada can help you stay organized for a small fee.

2. Itemize your deductions

For the 2017 tax year, the standard deduction is $12,700 if you’re married filing jointly, $6,350 if you’re single or married filing separately, and $9,350 if you’re filing as head of household.

As a homeowner, though, you may have enough in eligible expenses to itemize your deductions. If those itemized deductions add up to more than the standard deduction, you could lower your tax bill even more.

Eligible expenses could include:

  • Home mortgage interest
  • Property taxes
  • Charitable contributions
  • State and local income taxes or sales tax (but not both)
  • Loss from property damage or theft
  • Some medical expenses not paid for by insurance
  • Work-related expenses your employer didn’t reimburse you for

3. Keep track of your moving expenses

Taking advantage of the moving expenses deduction can be a valuable tax tip for homeowners. If you moved into your home this year because of a work relocation, you might be able to deduct some of your moving expenses and some of the closing costs on your home.

To qualify for the moving expense deduction, you have to meet certain requirements. For example, your new workplace must be at least 50 miles farther from your old home than your old workplace was. Also, the move must occur within one year of starting the new job.

“Deductible [moving] expenses might include money spent on travel, moving trucks and storage units,” Zimmelman says.

As for closing costs, you can deduct some or all of the discount “points” you paid to lower the interest rate on the loan.

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4. Hold onto home improvement receipts

If you make any improvements to your home, the expenses aren’t deductible for the current tax year. However, when you sell the home in the future, they can help lower your tax burden then.

That’s because you can add home improvements expenses to your adjusted basis, which is generally what you paid to buy the house, plus the cost of construction, renovation, or other improvements you’ve made, minus any losses you’ve experienced from damage to the home.

For the tax year in which you sell the home, your taxes on the sale are based on the sale price plus any concessions you get from the seller (such as them paying closing costs) minus your selling expenses. If the amount you gain from that equation is higher than your adjusted basis you have a capital gain on the sale. So, the higher your adjusted basis, the less taxes you may have to pay on your profit from the sale.

5. Track your home office expenses

If you work from home, you may be able to deduct some of the expenses you incur for your business use of your home.

“Not every person who works from home can claim a home office,” Zimmelman says. “The home office must be used regularly and exclusively for business and be the primary site of the business.”

Types of expenses you can deduct include the actual expenses you incur for the home office and depreciation for the portion of the home used.

You may even be able to qualify for this deduction if you’re an employee. You have to meet additional requirements, however. For example, your remote work situation must be for your employer’s convenience. So, if you’re working from home just because it’s an option, you might not qualify for the deduction. If, on the other hand, the employer has no home office and you have no choice, you could be eligible.

6. Make energy-efficient updates

Adding a solar energy system to your home is not only good for the environment, it can also be good for your tax refund. The IRS allows you to take a tax credit worth 30 percent of the cost of installing a solar energy system.

If you’re thinking about holding off on taking advantage of this tax credit, don’t wait too long. The credit amount for residential improvements decreases to 26 percent in the year 2020, then to 22 percent in 2021, after which it goes away entirely.

7. Save your tax records

Here’s one tax tip for homeowners that’s probably valuable for most people. Once you take advantage of all the available deductions and credits in the current tax year, hold onto them.

“You never know when you might get audited,” Zimmelman says. “It’s important to have the documentation to back up your deductions.”

The law requires that you keep all the records you use to file your tax returns for three years from the date a return was filed. That’s typically how far the IRS goes back when doing an audit. Keep in mind, however, that the IRS can go back further (usually no more than six years back) if it identifies a substantial error in a return.

Bottom line

Owning a home can be expensive, but, fortunately, the tax breaks can help make up for the extra costs. As a homeowner, it’s critical to know which deductions and credits you qualify for and to make sure you maximize them to your benefit. Using Credit Karma Tax™ to file your taxes for free, and following these tax tips for homeowners could help.


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Source: Tax tips for homeowners could help reduce tax bills ⎸Credit Karma