Getting the Most out of Life
6 Tax Breaks for Homeowners in 2015
Millennials are finally starting to age out of the renter mentality. Beyond building equity, homeownership comes with plenty of other perks. These six tax breaks for homeowners offer financial incentives to help you stop lining your landlord’s pockets.
1. Deductible Mortgage Interest
As long as you bought your home with a secured loan, and it’s either your primary or secondary home, you can deduct the interest you pay. Of course, there are restrictions. This deduction is typically limited if your mortgage(s) total more than $1 million (or $500,000 if you’re married and filing separately). Home-equity debt is also eligible if it amounts to $100,000 or less and was taken out on or after October 13, 1987.
2. Private Mortgage Insurance Deduction
Despite the horror created by the housing market crash from just seven years ago, it still isn’t uncommon for buyers to put down as little as possible on a new home. If your down payment is less than 20 percent, then you have to buy private mortgage insurance (PMI). PMI taken out in 2007 or later is eligible for a deduction and can be coupled with deductible mortgage interest.
3. Renewable-Energy Tax Credit
Thinking about putting in solar panels? It might be worth the investment. You can get a tax credit of up to 30 percent of the cost of equipment and installation when you switch to renewable energy to power your home. This tax credit won’t pay for the full cost of the upgrade, but it’s a no-brainer as far as tax breaks for homeowners go—you’ll lower your utility bill and help the planet all at once.
4. Energy-Efficiency Tax Credit
The tax-break cousin of the renewable-energy credit, the IRS will also give you a financial bump if you make improvements that increase your home’s energy efficiency. These could include adding storm doors, insulation, energy-efficient windows, or a new AC and heating system. The maximum credit is $500, and only $200 can be used specifically toward windows.
5. Deductible Real Estate (Property) Taxes
It’s a bit of a mind bender, but you can get a federal tax deduction on your state and local real estate taxes. Even people living in non-income-tax states can take this federal deduction—they do pay real estate taxes, after all. Talk about a win-win tax break for homeowners!
6. Penalty-Free Retirement Fund Withdrawals
It’s not often wise to steal from your future self to pay for today’s expenses, but if you’re looking to become a first-time homeowner, the IRS will let you withdraw up to $10,000 without penalty from a traditional or Roth IRA. You can also borrow up to $50,000 from a 401(k), but you can use no more than half your balance. Just remember, you have to put the money back into your account, and the interest you pay on a 401(k) loan isn’t tax deductible like mortgage interest is.
Don’t Be Afraid to Talk to a Professional
You can always consult a tax expert to make sure you’re getting the absolute maximum refund possible, especially as a homeowner. And don’t forget to keep your receipts for anything you could possibly use as a tax break come April 15.