Top 10 Tax Deductions and Credits for Homeowners
Tuesday, March 16th, 2010
If you are like me, you probably put off filing your 2009 taxes. But with the deductions and credits that apply to buying a home and making energy efficient improvements, if you are a homeowner, you will want to get started now, rather than later, to make sure you receive all the tax breaks you have coming in 2010.
It’s important to note that a tax credit is generally more valuable than an equivalent tax deduction because a tax credit reduces the tax dollar-for-dollar, while a deduction only removes a percentage of the tax that is owed. For instance, if you can itemize energy-related purchases on your tax form, it will reduce the amount of tax you owe.
Hopefully my top 10 tax deductions and credits will help.
1. Energy Credits: President Obama’s American Recovery and Reinvestment Act reinstated federal tax credits for homeowners who make certain energy-efficient improvements like new doors, new windows, furnaces, heat pumps, hot water heaters, air conditioners, and more. The credit is up to 30% of the cost of installing such energy savers, up to a maximum credit of $1,500.
A larger credit is available for more ambitious projects especially ones where you generate your own power. For more information on which products qualify for credits, visit here.
2. First-Time Home Buyer credit: A home bought in 2009 may qualify for either an $8,000 or $6,500 credit. To qualify for the $8,000 credit you must not have owned a home for three years prior to buying a new house. The credit is up to 10% of the purchase price or up to a maximum credit of $8,000. For purchases after Nov. 6, 2009, no credit is allowed for homes that cost more than $800,000.
To qualify for the $6,500 credit, you must have lived in the same primary residence for five consecutive years over an eight-year period leading up to the purchase of a new home. The credit is 10% of the purchase price, up to $6,500.
3. Home-office deduction: The costs related to operating your primary workplace from your home are tax deductible. These costs include depreciation, utilities, and insurance for the portion of the home used for meeting with customers or for the primary place of business.
4. Points: Points paid to obtain a mortgage for the home are generally fully deductible, but not if you paid them as part of refinancing: in that case, you must deduct the points over the life of the loan.
5. Moving Expenses: If you moved for a new job that is 50 miles or more away than your old job was from your old home, you can deduct the expenses related to the cost of moving your family and household goods.
6. Rehab Credit: If your home is a designated landmark, you can claim a 20% tax credit for the renovations made within a two year period.
7. Rental Income: If the home was rented for 14 or fewer days when there was a major event in taking place in your town, like the Olympics, the income, regardless of the amount collected, is tax free.
8. Mortgage Interest credit: If you received a mortgage credit certificate from a governmental agency, you can claim a tax credit of up to $2,000.
9. Real Estate Taxes: You can deduct state and local real estate taxes paid during the year on any number of homes.
10. Roth IRA Payouts: The rules allow IRA Roth contributions to be withdrawn at any time without penalty, so this is a great tool to help save for a first home if you are a would-be home buyer. You can withdraw all the money deposited each year tax- and penalty-free. And, if the account is five years or older, you can withdraw the earnings tax-, and penalty-free too if you use them to help buy a first home.
Please note, there are more credits and deductions than the ones listed. To make sure you have not overlooked anything, or for help answering specific questions or any concerns about filing your taxes, I highly recommend working with a Certified Public Accountant. The money invested on an accountant will pay you back, either in the form of money saved from taking the appropriate credit or deduction, or by avoiding a penalty for incorrectly filing your return.
Here’s hoping your tax season is less taxing.
An IRA allows you to prepare for retirement by investing for the long term in a tax advantaged way. Investment gains are not taxed until disbursements are made. And in some cases the contribution may be deductible as well. (The main types of IRAs are Traditional and Roth – there are differences between the products with Roth IRAs offering a bit more flexibility but there are tighter restrictions on who can qualify). In general IRAs provide an additional way for anyone to save for retirement. They can be particularly effective for employees of small businesses who may not have retirement plans available at work.
