Being a homeowner has wonderful benefits, the biggest of which for Colorado homeowners is building equity over time. You are also available for tax breaks that aren’t applicable for renters. Some tax benefits have become more relevant in a post covid world like an at home office and medical related home improvements.
Here are five homeowner tax breaks you should know about:
1. The Mortgage Interest Deduction
Each month when you pay you mortgage a portion goes toward your loan’s principle and a portion goes toward interest. The interest portion is legible for deduction on your taxes. Reference the tax form your loan servicer sends you to see which portion of your monthly payments apply to mortgage interest.
If you paid mortgage points on your loan to secure a lower interest rate you may be eligible to deduct them on your tax return.
2. Property Tax Deductions
Colorado’s known for having the nation’s 5th lowest property taxes. You can deduct up to $10,000 in property taxes each year, but that $10,000 limit also includes whatever state and local taxes you may be looking to deduct. For example, if your property tax bill comes to $8,000 but you're deducting $4,000 in state taxes, it means you can only deduct $6,000 of your property taxes.
3. Home Office Deduction
If you're self-employed, you may be eligible to take a deduction for maintaining a home office. If you work on a freelance or self employed basis you can take advantage of this at home tax break. Many salaried employees are working from home right now due to the pandemic. But if you're salaried, this deduction doesn't apply to you.
This deduction can be calculated in different ways: First, you can figure out what you spent on total housing expenses, from utilities to internet fees, and then take a deduction based on the percentage of your home your office takes up.
Or, to put it another way, if you have a 2,000-square-foot home and your office takes up 200 square feet, you can deduct 10% of your eligible expenses. If those home expenses total $10,000, you get a $1,000 deduction. Another option is to use the simplified method, which allows you to deduct $5 per square foot of office space up to 300 square feet. In the example above, your deduction for a 200-square-foot office would be $1,000.
4. Some Home Improvements
Home renovations considered a medical expense, including equipment costs and fees for installation, could be fully deducted. (On a related note, you may be able to deduct unreimbursed medical expenses that exceed 7.5% of your AGI, or Adjusted Gross Income. Examples of medically needed home renovations include ramps, stairway and doorway modifications, support bars, new outlets or fixtures, and warning systems, as long as they don’t increase your home’s value.
You could also get a credit for up to 26% of the cost of installing solar panels, solar water heaters, and other forms of solar energy.
5. Home Equity Loan or HELOC Interest
Home equity loans and lines of credit (HELOCs) let you borrow against your home equity and use that money for any reason. If you took out a home equity loan or HELOC in order to improve your home, then you're allowed to deduct the interest you paid on it. If you used that money for something outside of home improvements, that deduction won't apply.
What tax breaks are you be eligible for?
There are more deductions than this that you should consider but I wanted to keep this blog homeowner benefit related. As I am a Colorado Realtor, not a CPA you should consult a qualified CPA for accurate deductions for you and more detailed information. If you’re looking for a local CPA I’m happy to refer you to some I trust, get in touch.
If you’re thinking about making a move lets chat over coffee to discuss a timeline and strategy that works best for you.
Sources:
