If you're in the market for a new home — in particular your first home — you may not be fully in the know about the tax benefits that come with homeownership. Here at The Sam Team, we want to make sure that prospective buyers and new owners are aware of the financial advantages to owning your own property, and tax deductions or credits are no exception. If you're filing your taxes at the last minute this year, that's no reason to rush on ahead without considering the credits you qualify for. If you're short on time and aren't able to delve into deep research, here's a handy list to help you get started!
Nonbusiness Energy Property Credit
If you haven't already made energy improvements to your home, this one is good to keep in mind for next year. This 30% credit is available to those who have made "qualified" improvements to their home to increase its energy efficiency. Such improvements could include upgraded water heaters and stoves, heating and cooling systems, and solar panels, among many more. Labor and installation costs also qualify, so ensure you keep all records pertaining to the work done, such as receipts or contracts.
Mortgage Interest Deduction
As a homeowner, you're able to deduct a portion of your mortgage interest payments on your primary and secondary home, if applicable. There are a few conditions: your deduction will be limited if your overall mortgage balance exceeds $1,000,000 (or $500,000 if you're married and you're filing separately from your spouse) or if you took out a mortgage for purposes that didn't involve the purchase, construction, or improvement of your house. That being said, most Texas homeowners can count on this deduction as a lucrative option.
Though most home improvements aren't immediately deductible, there are a few ways to ensure they qualify. If you require a loan to fund your projects, choosing a home equity line of credit or home improvement loan is the way to go, as these qualify for mortgage interest deductions. Alternatively, you could choose to add these expenses to the cost basis of your home, so that when the time comes to sell you can write off the improvements to reduce your taxable income. The improvements that could increase your basis include:
- Building an addition onto your home
- Paving your driveway
- Replacing a roof
- Having central air conditioning installed
- Having an older home rewired
Keep in mind that only home improvements pertaining to the remodeling or restoration of a home add to your basis — in other words, changes that add value. Repairs and replacements to damaged features typically do not increase your basis and are not deductible.
Home Office Deduction
Self-employed individuals who work from their homes can deduct expenses related to the business use of their property. While this applies to renters and buyers alike, many homeowners are unaware of this perk. There are several requirements to qualify for this deduction. These include the following conditions:
- You should use a portion of your home exclusively for business purposes, and on a regular basis
- The designated area in your home must either be your primary place of business or one where you meet with clients for business reasons
- If the gross earnings from your home business don't exceed your expenses from it, limitations could be applied to your deductions
In addition, if you're a homeowner who uses the regular method for home office deductions, expenses relating to your general property may qualify. Examples of these expenses include part of your mortgage interest, taxes, and even utilities. However, the percentage of these expenses that you can deduct is typically based on the amount of space in your home that is used for business purposes.
Mortgage Credit Certificates or MCCs
The Texas Mortgage Credit Certificate Program was designed to help low and mid-range income families and professionals enter the world of homeownership. The program is especially aimed at first-time homebuyers. To qualify, you must meet the home purchase requirements, have never owned a primary residence home during the past 3 years, qualify for a mortgage loan, and plan to use the property as your primary place of residence.
As you can see, the tax benefits for homeowners can be extensive — as long as you plan correctly. If you have any questions about buying a first home in Pearland or the finances involved in homeownership, we can help. You can reach The Sam Team at 832-200-5656. We look forward to speaking with you!