If you own real estate, chances are you know all about the tax breaks associated with mortgage interest and property taxes. But did you know that truly savvy homeowners take advantage of even more tax breaks from the Internal Revenue Service?
For example, if you refinance your mortgage and pay points up front, you can deduct that prepaid interest over the life of the loan (or all at once if you use cash from the refinance to improve your house). If you paid points on a vacation home, you must deduct them over the life of the loan – no exceptions.
Also, if you sold your home you may still qualify for the gain exclusion even if you didn’t live in it for two of the last five years. The IRS allows homeowners certain “unforeseen circumstances” including death, divorce, job loss or employment changes, and multiple births. Partial exclusions apply for damages caused by natural disasters or applications of the eminent domain law.
Don’t forget to save your receipts from major home renovations. Although the federal energy tax credit expired in 2011, you can still add those repair and replacement costs to your purchase price to reduce your gain when you sell. Same goes for the expenses associated with that lovely new kitchen, luxurious new bath or sparkling house paint and patio, adjusted for depreciation.
Finally, if you work at home don’t forget that you can deduct the expenses associated with running your home office. You may deduct a portion of your loan payment, property taxes and maintenance costs in addition to expenses associated with office supplies. For more information, contact a local tax professional – and no cheating. The IRS screens home office deductions carefully.
Keep an accurate record of what you spend to maintain your home. Chances are you will find a way to deduct a healthy portion of it.