As this year’s deadline approaches, there are a few tax deductions and credits personal homeowners should remember in the coming days:
Home-equity loan interest is deductible – In recent years, homeowners have taken home-equity loans to improve their residences. Interest paid on those loans can be tax-deductible, according to Guy Hockerman, a senior financial planner and VP at Commerce Bank in St. Louis. A tax deduction is available on interest on home-improvement loans up to $100,000. Loans used to upgrade a rental property are for the benefit of real estate business owners instead of for homeowners.
The deduction is in addition to the home mortgage-interest deduction already available to homeowners, Hockerman says. The home mortgage-interest deduction only applies to the first $1 million on any loan used to buy a personal home. The amount of the deduction, he explains, depends on the homeowners’ tax bracket. People in the higher tax brackets, such as the 39.6-percent bracket, benefit more from the deduction than people in the lower tax brackets.
Profits on selling a home are tax exempt – Married couples pay no taxes on home sales that profit less than $500,000, Hockerman says. The requirements are that the home is the married couple’s principal residence, have lived in the home for two out of five recent years, and that the home’s appreciation is less than $500,000 since the initial purchase price. For single people selling their home, the tax-exempt benefit is limited to only $250,000.
Tax credits for making homes energy efficient – People can receive $500 in tax credits for installing energy-efficient air conditioning systems, solar water heaters and other home improvements, says Barry Feldman, a home loan consultant with First Bank in St. Louis. Unlike tax deductions that reduce income and then reduce tax owed to the government, tax credits directly reduce the tax owed, Feldman says. Homeowners may claim the energy efficiency tax credits only in the year the home modifications occur.
Prior years’ tax deductions and credits may be claimed – People who failed to declare any of the above deductions and credits in previous years, may claim them this year, Hockerman notes. It is a simple process of amending their prior years tax returns by culling information from annual mortgage statements, home sales reports and home-related purchases.
In addition, both specialists advise homeowners interested in the tax deductions and credits to talk to their personal tax adviser to obtain their specific benefits.