Dakno Content Blog

Category: Tax Breaks for Homeowners

  • The Top Tax Deductions & Credits for Homeowners in 2019

    Taxes are confusing, which is why many people in the U.S. choose to hire an expert to do their taxes for them. After all, there are so many numbers to know, forms to have ready, records of income and expenses, W-4s, 1099s, 380-Ts—we could’ve just made that last one up, and there’s no way of knowing!

    Even though taxes might be complicated, they (sometimes) have a few perks. And if you own a home, those perks could mean a major bonus on your return. If you’re thinking of buying a home before next year’s taxes are due, here’s everything you need to know about how making a home purchase can affect your returns.

    A calculator app on an iPhone.

    Deductions vs. Credit

    Before we kick off the fun stuff, it’s important to know a little jargon—namely, the difference between a deduction and a credit.

    When it comes to credits, think of them like tax-related coupons that reduce your dollar-for-dollar total. A few major tax credits include child tax credits, adoption credits, education or retirement credits, or credits for energy efficient homes and cars. Depending on the credits you qualify for, you could get anywhere from a few hundred to a few thousand dollars taken off of your tax liability.

    Deductions are a little different: they reduce your taxable income, which can then adjust the total that you owe. Claiming certain deductions means that that part of your income is exempt from being taxed. Knowing which deductions to claim is key when filing, especially for homeowners.

    Tax Benefits for Homeowners

    Buying a home is expensive, but when it comes to tax time, here are the ways you can make some of that money back.

    Various tax documents.

    Mortgage Interest

    One of the reasons that taxes for homeowners are so confusing is because they tend to change based on federal standards. Over the past few years, the federal Tax Cuts and Jobs Act pretty drastically altered the tax benefits for home ownership.

    The most important change to know this year has to do with mortgage-related deductions. Previously, the tax deduction for home mortgages was limited to interest paid on $1 million debt for jointly filing married couples and single filers and $500,000 for married couples filing separately. Now, the numbers look more like $750,000 for the former and $500,000 for the latter. Additionally, interest paid during closing can also be counted towards this number.

    Property & State Taxes

    Did you know that the amount you pay in property taxes, state income taxes, and local sales tax is also deductible? If you pay property taxes through escrow, your lender will need to get the amount for you on your 1098 form, otherwise you should be able to find it in your personal records. The latest tax laws have instituted a cap at $10,000, but every little bit counts!

    Private Mortgage Insurance (PMI)

    Believe it or not, tax deductions on PMI are a hotly contested subject. Until recently, buyers were able to deduct the payments they made on Private Mortgage Insurance, but as of 2017, that ability expired. If you did buy your home before 2017, then your yearly income will determine how much you can deduct.

    There’s no timeline on when deductions for PMI could return, but, unfortunately, if you’re a more recent home-buyer with these payments, those perks aren’t currently available.

    Credits

    We talked a little bit earlier about the difference between deductions and credits, so what sort of credits can you get as a homeowner? One of the biggest tax credits that homeowners can cash in on is having energy-efficient homes. In fact, if you installed geothermal heat or solar energy, you could be entitled to credit for up to 30% of the installation fee.

    Other energy-efficient features, like storm doors and added insulation, can net you a few hundred dollars in credit, as well.

    A person holding several one hundred dollar bills.

    Tax-Free Profits

    While many parts of the tax law have changed in the past few years, one aspect has stayed the same: tax-free profits. Selling your home not only means a big profit after the sale, but a large portion of the money you make won’t even get taxed—meaning you get to pocket more.

    Married homeowners who sell their homes won’t have to pay capital gain taxes on up to $500,000 from the sale, while single filers can keep half of that as non-taxable income.

    While there are some guidelines—like the home must have been a primary residence for at least two of the past five years—it’s a big plus when it comes to selling.

    Want to Explore More of the Benefits of Home-Owning?

    Believe it or not, there are a lot more benefits to owning a home than tax deductions. If you need help navigating the ins and outs of the home-buying and home-owning process, our team is here to help. With years of local experience and real estate know-how, we have the skills and resources necessary for home-buying and selling success.

    Ready to learn more? Just give us a call.

  • A Quick Guide to Tax-Deductible Donations in Your Home

    Coffee cups protected by paper in a cardboard moving box.In the season of giving, many local organizations and businesses often accept donations of clothing, household goods, and other gently used items to help those in need.

    Homeowners looking to downsize or preparing for a move (or just clearing up some space at home) can not only pay it forward by donating to a local charity, they can also take advantage of tax deductions. We’ve created this handy guide to tax-deductible items to help you know what to donate and how to write off your contributions.

    Belongings and Household Items That You Can Donate

    Most organizations have guidelines about the specific items that they accept, but in general, you can donate these kinds of items to local charities:

    • furniture, such as beds, desks, tables, and chairs
    • clothing, such as shirts, shoes, and new underwear
    • appliances, such as heaters, working TVs, and A/C units
    • vehicles, such as cars or boats
    • building materials, such as doors, windows, and wood flooring

    How to Deduct Your Contributions

    Dozens of suitcases, duffle bags, and boxes packed into a tiny attic.The IRS allows homeowners to take itemized deductions on charitable contributions on their tax returns. If you have an attic full of items that you don’t use or have several boxes of items that you don’t want to move to your new home, don’t just throw them out! Here’s what to do instead.

    1. Find a Charity That Qualifies for Deductible Donations

    The IRS’s Exempt Organizations Select Check tool is a great place to start. You can search by city or state to find a list of organizations that qualify for tax-deductible contributions. It’s important to note that donations to individuals aren’t tax deductible.

    2. Determine the Value of Your Contributions

    Knowing the monetary value of your contributions is essential to writing off your donations on your taxes. Some organizations, such as the Salvation Army and Goodwill, have helpful guidelines about the fair market value of appliances, clothing, furniture, and other household goods.

    Neon sticky notes and a pen sitting on top of a document with a long list.Before you donate your items, make a list of each item and its value. You can evaluate your items by checking with the organization or, for any high-value items, having them appraised.

    3. Know Your Limits

    There are limits to what you can deduct for charitable contributions on your income tax returns. If your donations are more than 20% of your adjusted gross income, certain caps may apply based on what kinds of items you donated and to what type of organization.

    If you contribute over $500 in items, you will need to fill out and attach Form 8283 to your return. If you make any contributions over $5,000 for items like rare art, collectibles, or real estate, you will also need to have them appraised.

    4. Ask for a Receipt or Other Written Record

    Once you’ve donated your items, ask for documentation, such as a receipt. Having a record of your contribution will help you know exactly how much you donated (and what to write off on your taxes).

    Are You Donating Items to Prepare for a Home Sale?

    Granite kitchen countertops that are free of any clutter and appliances.You’re off to a great start. Clearing out your closets, basement, attic, or other storage space is the best way to lighten the load for your move. We can help you take your preparations a step further.

    Whether you’re starting to research the value of your home or are simply considering the idea of putting your home on the market, we’re here to help. Contact us and we’ll provide you with all of the information you need.