Current and prospective homeowners can make big savings via real estate tax deductions if they handle it right upon closing the deal. Real estate consultant Marian Schaffer, principal and founder of Southeast Discovery, which specializes in helping Baby Boomers with their real estate needs, recently shared some tips on how homeowners can negotiate their real estate tax deductions.
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“The federal government is keenly aware of the national real estate market’s significance and its impact on the overall economy,” Schaffer explained. “As a result, there are plenty of tax breaks available to consumers that encourage home ownership and benefit current homeowners. Both prospective and current homeowners should take the time to learn about these tax deductions to make sure they are taking advantage of all the financial benefits available to them.”
Schaffer points out some of the biggest tax deductions that homeowners can apply for:
1. Home Mortgage and Refinancing Points:
Schaffer advises that it's possible write off the points you've paid on both origination and discounts at the close of the deal. Mortgage lenders charge fees in which one point is equal to one percent of the loan principal, but Schaffer says these can be written off.
“Depending on your eligibility, you can either deduct all the points at once, or you may have to amortize them over the life of the loan” she explained.
2. Home Improvement Loan Interest:
The IRS says that the interest on a loan given to make improvements on a home is fully deductible, however the work must be defined as a “capital improvement” for homeowners to take advantage of this break. Schaffer said that improvements that qualify include anything that boosts the value of the home, including a new fence, roof, porch or garage; new built-in appliances, heating or cooling systems, or something else like landscaping the garden or even installing a new pool.
3. Property Taxes:
Schaffer says that property taxes are tax-deductible in most cases, and that means transfer taxes can also be written off. However, she says other settlement items like attorney and appraisal fees, credit report costs and title insurance cannot be written off.
4. Energy-Efficiency Tax Credit:
It's possible to obtain tax credits by installing energy-efficient amenities like storm doors, air-conditioning, heating systems, insulation and energy-efficient windows, Schaffer says. However, this kind of credit has a maximum lifetime of $500, and only $200 of this can be used for windows.
5. Renewable-Energy Tax Credit:
Renewable Energy Efficiency Property credits are available for those homes that use renewable energy sources like solar power or wind power. Schaffer says such credits can be as high as 30 percent of the cost of the equipment, so long as it's still in service by the end of the year.
6: First-time buyers:
Last but not least, Schaffer says that first-time home buyers are able to withdraw up to $10,000 from a traditional IRA or Roth IRS without being penalized, so long as that withdrawal is done to help with their home purchase. Additionally, a relative such as a spouse, parent, child or grandchild can withdraw a further $10,000 from one of their own IRAs, for a total of $20,000 that's tax deductible.
“Real estate activity will always be a crucial factor to our nation’s economy, therefore, the government will always provide tax incentives to entice consumers to purchase and own real estate,” said Schaffer.