Last-minute tax deductions for homeowners to take before New Year's Eve
Uncle Sam wants you to buy a house. That’s right - even with higher interest rates, the tax benefits of owning a home are remarkable. But don’t let this year slip away. FOX 5 real estate expert John Adams has some tax deductions you can take before New Year's Day.
1. Move from Standard Deduction to Itemize
Most folks take the standard deduction until they buy a home. Once you have a mortgage, it almost always pays to itemize your deductions, and that is a big deal. Once you itemize, it becomes possible to take advantage of things like charitable deductions. Don’t ignore this incentive.
2. Mortgage Interest
All interest payments made on the first $750,000 paid to buy your principal residence is tax-deductible. And with higher interest rates, that deduction has expanded. This deduction is the one that makes homeownership possible for most first-time buyers.
3. Property Taxes
You can deduct up to $10,000 (married filing jointly) for property taxes or a combination of property taxes, sales tax, and state income tax.
4. Costs of financing (Discount Points)
If you took out a loan to buy your house in 2022, you may have paid Loan Discount Points, usually 1 to 3 percent of the loan amount, as a form of prepaid interest. On the purchase of your principal residence only, you can deduct all discount points paid at the closing in the year of purchase so long as they are normal and reasonable in your area. Points on a refinance loan must be amortized over the life of the loan.
5. Residential Renewable Energy Tax Credit
You can take a direct tax credit for 30% of the cost of energy equipment that qualifies for the Residential Renewable Energy Tax Credit. That includes solar, wind, geothermal and fuel-cell technology: The most common use is Solar panels for generating electricity. The electricity must be used in the home.
6. Exclusion of Gain on Sale of Your Principal Residence
If you sold your principal residence this past year you may qualify to exclude up to $500,000 of your capital gain from all forms of taxation. You and your spouse must have owned and occupied that house as your principal residence for any 2 of the 5 years immediately preceding the date of sale.
The bottom line is that the tax man is super-friendly to homeowners, and now is the right time to get your real estate tax deductions in order. Remember that each of the tax benefits mentioned has specific rules and regulations that may or may not apply to you, so always be sure to check with your CPA for tax advice.