Tax Breaks for Homeowners – Including Second Properties

Tax Day (April 18, 2022) will be here before you know it! As a homeowner, you can benefit from some tax breaks that can make your home more affordable, with thousands of dollars shaved off from your IRS bill each year. It’s a benefit I’m happy to remind you about.

Read over the list below to see what could apply to your situation. And, no matter what, please remember to always consult with your tax advisor.

• Mortgage interest. Interest paid on home loans is deductible up to $1 million for a principal residence plus a second home. You’ll need to itemize your income taxes in order to claim this. Don’t just fill out the 1040-EZ without doing the math first to see whether itemizing or the standard deduction will result in the lowest tax bill – or highest refund – for you.

• Property taxes. Property taxes on all real estate are fully deductible. When you buy a home, check the settlement sheet to see if you reimbursed the seller for property taxes he or she prepaid for a period you actually owned the home. If so, include that amount in your property tax deduction.

• Credit for green improvements. Not a tax break but a credit. It allows homeowners to take up to $500 off their federal income tax for making certain improvements that increase the energy efficiency of their homes, such as water heaters, furnace, boiler, heat pump, windows or roofing. This credit will be around until 2023 and applies to second homes as well as primary residences.

• Investment Property/Rental Property. The cost of maintaining and marketing a rental property can be deducted from the income the property generates, without regard to the owner’s tax status. These expenses include mortgage interest payments, insurance, utilities, maintenance, repairs, advertising costs and management fees, as well as the non-cash cost of depreciation.

• Home office. You can deduct the costs of a home office that you use exclusively as your principal place of business. To claim this deduction on your 2021 tax return, “taxpayers generally must exclusively and regularly use part of their home or a separate structure on their property as their primary place of business,” according to IRS Tax Tip 2022, January 19, 2022. If you are an “employee,” you are not eligible to claim the home office deduction, which may mean that those who continued to work from home during the pandemic fail to qualify for this deduction. Read more at irs.gov.

• Tax-free rental income. If you rent out your own home for 14 or fewer days during the year, the rental income is tax-free.

Be sure you are taking advantage of all the tax benefits available to homeowners.  If you would like a recommendation for a CPA or accountant, please let me know.