Provided by:
Albert Rodriguez CPA
248 Lorraine Ave, 4th floor
Montclair, NJ 07043
Rodriguezcpa.net/973-783-1040
The deductibility of homeowner expenses is a significant area of tax savings. Here is what is deductible from your taxes if you own your home:
Mortgage Loan Interest
Interest on your main home and a second home are generally deductible as an itemized deduction. The qualified loan(s) can be first and second mortgages, home improvement loans or a home equity loan.
Mortgage Costs
Costs paid in advance as “points” and loan origination fees at closing are deductible.
Refinancing “Points”
Points paid during refinancing can be deductible, but must be spread out in equal amounts over the life of the new loan.
Real Estate Taxes
Property taxes paid on your main and second homes are deductible as an itemized deduction.
Rental Income Less Than 15 Days
If you rent your home for less than 15 days during the year, you do not need to claim the income.
Assessments
Expenses for maintenance or repair are deductible.
Home Office
Homeowners may also qualify for a home office deduction if certain qualifications are met. The key criteria for a home office are:
- Principal place for your business
- Where your patients, clients or customers meet with you in the normal course of business
- The area is used exclusively and on a regular basis for business
- The area is used at the convenience of your employer
- The area is the sole place for storing products used for your business
- A place to conduct the administrative or management activities of your trade or business, provided there is no other fixed location for such activities
You are limited to home office deductions equal to but not greater than the gross income of the business minus other business activity expenses.
These charges are not deductible:
Lender Imposed Closing Charges
Charges related to the mortgage loan, but not loan interest, are generally not deductible. These include appraisal fees, notary fees, preparation and loan registration fees.
Seller Paid “Points”
The seller may not deduct “points” paid on behalf of the buyer.
Homeowners Insurance
The insurance premiums are not deductible even if the payments are escrowed as part of your monthly payment.
State and Community Charges
Charges by the state or township for services such as water and sewer are not deductible.
Assessments That Improve Your Property
State and local assessments such as sidewalks are generally not deductible.
When you sell your home you may be able to exclude up to $500,000 (married couples) or $250,000 (single person) of your gain when selling your house. This tax-free gain can be used once every two years for your primary residence. To qualify for the gain exclusion, you must also meet a two-year out of the last five-year residency requirement. But even this qualification has some exceptions if you are required to move due to unforeseen circumstances. In addition, qualified home improvements can be added to your home’s value to reduce the possible gain. Home improvements include such things as adding a room, finishing an unfinished basement, adding a new roof, or paving your driveway. Repairs and maintenance are not considered improvements unless they are done in conjunction with a remodeling project.
This article provides only summary information, for specific questions about your situation, please contact your tax professional.
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