Tax Deductions

Did you know that your new home purchase might open up a world of tax breaks? Check out these deductions brought to you by Ruoff Home Mortgage.

Interest is the amount you pay to borrow money. A home mortgage interest deduction allows taxpayers who own their homes (and itemize their taxes) to reduce their taxable income by the amount of interest paid on the loan. Only a handful of states have tax breaks for renting!
This deduction is usually the biggest tax break you’ll receive as a home owner. In most cases, you can deduct all of your home mortgage interest. How much can you deduct? That depends on several factors such as date of your mortgage, amount and how you use it.
Does it have a toilet? The mortgage interest deduction applies to anything that meets the definition of a basic living space that you own. Condominiums, mobile homes, and even boats are included, if they meet the living space definition with at least one sleeping area, a kitchen, and a toilet.
Learn more about the 2017 deduction at: https://www.irs.gov/publications/p936/ar02.html

According to IRS.gov the mortgage interest credit helps lower-income individuals afford home ownership. The Mortgage Credit Certificate program is designed to help first-time homebuyers offset part of their mortgage interest on a new home loan as a way to help you qualify for a loan.
BONUS! Because it is a tax credit and not a tax deduction, mortgage lenders will often use the estimated amount of the credit as additional income to help the borrowers like you qualify for a loan.
Homebuyers who want to receive this credit will need to meet these guidelines:
• You must not have owned a home in the past 3 years
• You must meet income and purchase price restrictions
• You must use your new home as a primary residence
Find out if you qualify: https://www.irs.gov/pub/irs-pdf/f8396.pdf

You may have the option to buy down your interest rate. Mortgage points (also known as discount points) are optional fees paid directly to the lender to buy a reduced interest rate. Any points that you choose to pay at the closing of your home loan are deductible! Usually, the deductions must be amortized (gradually written off) over the life of the mortgage. There are circumstances where you may be able to deduct the entire amount of your points paid in the year of purchase.
Find out if you qualify: https://www.irs.gov/taxtopics/tc504.html

Your local government will determine what your annual property tax will be based on the value of your home, outbuildings and land. They use the money collected from these taxes (also known as real estate taxes) to help provide community resources such as police and fire departments, maintaining streets and funding local schools. Believe it or not, there’s an upside to paying property taxes, besides helping your community!
You can earn a tax deduction for paying property taxes if:
• You bought your home for personal use
• It’s your main home or vacation home
• You itemize your taxes
Learn more at: https://www.irs.gov/publications/p530/ar02.html

Need money for a down payment? The IRS says you can pull funds from your IRA to help.
If you’re a first-time homebuyer, you can dip into your IRA to use towards a down payment on a home without having to pay the normal penalty for early withdrawal. This also applies if you owned a home in the past, but not within the past two years. You can take up to $10,000 from your IRA without penalty to buy a home, although you’ll still need to pay taxes on the money.
(Note: your 401k plan does not qualify for the exception to the penalty.)

What if you want to take out home equity loans to consolidate debts, make improvements to your home, or purchase a second home? Yes, you can pick up a tax break here too! Did you know that the interest on most home equity loans is tax deductible when filing your 2017 taxes?
• The deduction applies to interest from your loan for a first or second home
• If you are consolidating your debts, you can deduct the interest on the first $100,000
• You may also be able to deduct interest if your loan was for home improvements
• Home improvements made for medical purposes may be tax deductible, even when you don’t take out a loan to accomplish the project
• Starting in 2018 this deduction will be limited to home improvement
loans.

 If you meet the IRS distance and time tests after you relocate for a new job in 2017, you can take moving-expense deduction. Qualified expenses include the cost of moving your belongings, traveling to your new home, and the standard rate per mile. https://www.irs.gov/pub/irs-pdf/p521.pdf

Unfortunately, most Energy Star federal tax credits expired at the end of 2016. Don’t worry! From now through 2021 you can still earn tax credits for adding solar energy systems in new and existing homes.
Get more details at: https://www.energystar.gov/about/federal_tax_credits

So you found a home you love and reaped many of the tax breaks above? Congratulations, but the good news doesn’t end there! Another awesome benefit of owning a home is that the tax laws let you protect a large amount of your future profit when you decide to sell your home. We’re talking $250,000 to $500,000 in profit can be tax free depending on your circumstances!
For more info : https://www.irs.gov/taxtopics/tc701

If you’re self-employed or freelance and work from home, listen up! The home office deduction could save you money on your taxes. The IRS lets you write off part of your household expenses such as water, internet, phone and electricity needed for you to do business from home.
Click here for boat loads of information about home office deductions:
https://www.irs.gov/businesses/small-businesses-selfemployed/
home-office-deduction

Looking for tax benefits you may be eligible for because you rent an apartment or house? Unfortunately for tenants, landlords reap most of the benefits of rental property tax deductions. Renters can NOT deduct rent payments from your federal tax return. Some states offer tax breaks for renters, but most renting related deductions are for landlords.
If you decide to purchase an investment property to rent out, check out:
https://www.irs.gov/forms-pubs/about-publication-527

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