If you bought a new home in 2013 – congratulations! You’re living the American dream. Or, maybe you’ve been in the same home for the last twenty years. Either way, we’d like to give you a few tips on how you can deduct several home-related expenses when you file your taxes this year.
All of your interest is deductible (as long as your loan is less than $1 million). The interest deduction isn’t just applicable on your primary residence — you can deduct it off other properties and vacation homes you may own. If it’s a vacation home, just make sure that you vacation at least 14 days at that property, or the IRS won’t let you claim it.
Some home owners will pay points to get a better rate on their home loan. The IRS lets you deduct points in the year you paid them if the loan is to purchase or build your main home, payment of points is an established business practice in your area and the points were within the usual range. Make sure your loan meets all the qualification requirements so that you can deduct points all at once.
A homeowner who pays points on a refinanced loan is also eligible for this tax break. However, in most cases, the points must be deducted over the life of the loan. So if you paid $2,000 in points to refinance your mortgage for 30 years, you can deduct $5.56 per monthly payment, or a total of $66.72 if you made 12 payments in one year on the new loan.
Home taxes are another major deduction you can claim. In most cases, a huge chunk of most monthly mortgage payments goes into escrow for one year. Your lender should send you an end-of-the-year statement with your other loan information. These taxes are deductible as long as you own your home.
Energy Efficient Upgrades
You can deduct the cost of building materials if you made any energy-efficient upgrades to your home. 10% of the total bill for energy-efficient materials can be used as a tax credit, up to a maximum $500 credit. Insulation, doors, new roofs, and many other items qualify for the energy efficiency credit.
What’s NOT Deductible?
Private Mortgage insurance is not deductible for most homeowners. The exception is if you meet the requirements of a special PMI law – PMI payments on loans originated or refinanced between Jan. 1, 2007, and Dec. 31, 2013, and which meet certain loan amount limits.
Homeowner association dues are not deductible.