When tax season rolls around, there are numerous opportunities for homeowners to shave a significant amount off of their taxes, if they’ve made changes to their home in the past year. Here are just a few deductions that, when added up, can help homeowners save thousands.
Before we start, though, it’s important to note this: these deductions only apply if you opt for itemized deductions on your taxes, rather than taking the standard deduction. The standard deduction has increased under the new tax code, so make sure that you do the math first to ensure that itemized is the right way to go.
Mortgage Interest Deduction
It’s welcome news that any interest you pay on your mortgage is tax-deductible. This deduction is capped at a 750k mortgage, but the majority of homeowners in the US are under that cap, and free to take full advantage of this credit. Not many homeowners are aware that any discount points that you opted in on when you purchased your home are also deductible, since they are, in essence, prepaid interest.
Property Tax Deduction
A property tax deduction is especially useful if you have high local property taxes, or if you pay high state taxes. This deduction comes into play in your state and local taxes (SALT) and caps out at $10,000.
Medical Home Improvements
Did you recently make some changes to your home to accommodate medical needs for yourself or a family member? If you installed an elevator because your mother can no longer climb the stairs, or updated the filtration system in your home to protect someone with low immune functioning, you can get deductions that will help offset that cost. This can even apply for small costs, such as installing better lighting for failing eyesight, or changing the handles on your door knobs for someone with impaired mobility.
It is, however, important to note that some of these home improvements have a direct effect on the value of your home. You can’t deduct any costs that actually add to the value of your home, since it’s actually still your money in that case.
Energy Efficiency Updates
There are two energy-efficient deductions that might apply for you. First, the Renewable Energy Tax Credit, which will apply if you’ve installed a system for renewable energy system in your primary residence, such as solar or geothermal energy. You might also be able to utilize the Nonbusiness Energy Property Tax Credit. This credit applies for energy-efficient updates large and small, from buying a new HVAC system to adding insulation in your attic. However, it’s important to note that there are a lot of restrictions here, such as lifetime limits, and any new addiction meeting certain standards for energy efficiency. You can learn more about it on the IRS’s site.