Homeowner Tax Breaks & Strategies

Learn how you can save on your personal taxes by using the tax codes and strategic maneuvering to lower your taxes that you pay to the IRS and other taxing authorities…

In the current economy it is important that you use the personal income tax laws to your best advantage. With the tax season roughly at the mid-point and the home buying season just months away TheWealthIncreaser.com thought that Homeowner Tax Breaks & Strategies was an appropriate topic to focus on at this time.

In the following paragraphs you will learn what you can do to lighten your tax burden and possibly achieve your goals in a timely manner if you are now a homeowner or you anticipate becoming a homeowner in the future!

If you are like most—focusing on your taxes is not a pleasant experience!

However, by focusing on and comprehending what lies ahead in your tax future you can possibly put yourself in position to experience more pleasurable moments in your and your family’s future.

Be sure to choose among the following strategies (if you see the benefit of doing so) and lighten your tax burden and achieve your future goals in a more efficient manner.

It is important that you find an approach to effectively manage your personal taxes in the current economy that works for you and it is important that you have some ideas—and knowledge about how you can lighten your tax burden that will move you toward your future goals in a more efficient manner.

Be sure to retain and utilize what you feel can help you achieve your dreams in a timely manner and run what you feel might work for you by your tax professional to see if any of the following tax strategies can benefit you and your family.

OK enough fluff—be sure to analyze how you can utilize the following strategies if you are now a homeowner—or you intend on being a homeowner in the future:

Mortgage Related Tax Breaks

You can deduct mortgage interest, points, PMI/MIP (a reduction in MIP of $500 for the average homeowner was expected this year in the United States but was abruptly cancelled with the change of Administrations) and your property taxes while you are a homeowner and have a mortgage and possibly property taxes even if you are not a mortgage holder.

You must itemize your taxes in order to claim the deductions and by doing so you will save in taxes on your federal and state returns. In some cases it may be to your benefit to itemize on your federal tax return even though you will get less back on your federal return by doing so.

The reason for doing so would be that you would get more on your state tax refund but less on your federal—but your overall total (overall tax refund of state and federal) would be more by itemizing. Many taxpayers take the quick way out and lose financially by not doing this analysis, thereby overlooking this potential option when it could possibly be to their benefit.

For example, if you will get $500 back on your federal taxes using the “standard deduction” as opposed to “itemizing” and $400 back in refund on your state tax refund using the “standard deduction” —your grand total is $900.

If you will get only $300 back on your federal taxes using the “itemized deduction” as opposed to utilizing the “standard deduction” and $800 back in refund on your state tax refund by itemizing—your grand total is $1,100.

Simple math tells you that you are better off electing to itemize—$1,100 minus $900 equals $200 more dollars in your pocket! It can be difficult to determine in many cases without actually “running the numbers” as state tax laws vary and all tax returns are unique. However “electing to itemize” might be something that applies to your situation and their could be potential advantages (primarily more cash in your pocket) for you.

Improvements in your Home (Targeted)

By purchasing solar panels, dual-paned windows, low flow plumbing, tank-less water heaters, and other energy improvements spelled out in the tax code you can possibly deduct them on your taxes if you itemize your deductions on form 1040.

Many home improvement energy related deductions are scheduled to expire in 2020 and who knows what will happen after that time. However, at this time you can get a tax credit (applied directly against your taxes) of varying amounts up until the 2020 tax filing season.

Tax Exclusion from the Sale of Your Personal Residence

Did you know that you can possibly exclude the sale of your personal residence from taxes if you utilized your home as your primary residence in 2 of the 5 previous years? If you are single you can exclude up to $250,000 of the gain and if filing as married filing jointly—$500,000 of the gain from the sale.

Therefore, if you purchase right—get a substantial appreciation in the price of your home and you decide that the time is right to move in a few years or so after the value of your home has appreciated—you could pocket a nice tax-free gain (be sure to run your plans by your tax advisor to ensure that you qualify).

The creator of TheWealthIncreaser.com has utilized this approach personally and with many past clients and there is some risk that is involved. However, if you are of the personality type that doesn’t mind moving frequently, or you plan on moving frequently for other purposes—this could be a great strategy that could work for you.

Be sure to purchase in a neighborhood that has an upward trend in home appreciation. Be sure that you know the risks and you have a properly funded emergency fund in place and little or no revolving debt so that you can reduce the risks involved for you and your family. Even so, there is no guarantee that after your home purchase—the value of your home will appreciate. Hopefully, you get the point and you can clearly see the potential of how you could actually use this strategy to build wealth.

Cancellation of Debt

Although not a pleasant use of the tax code or even an effective strategy for most (you probably lost your home) the “cancellation of debt provision in the tax code for mortgages” does lighten the sting of losing your home some as it could be even worse. If you are one who can use the 2007 Mortgage Debt Forgiveness Act to reduce or eliminate your tax burden—you must do so.

The 2007 Mortgage Debt Forgiveness Act was extended through the 2016 tax year, however future extensions are uncertain at the time of this post. If your mortgage debt was cancelled and the 2007 Mortgage Debt Forgiveness Act applies to your debt forgiveness you could legally avoid paying tax on the debt that was forgiven. Time limits apply for using this strategy so be sure you fall within the timeline of the act to take advantage of this strategy if you have received or anticipate receiving mortgage debt forgiveness in your future.

Homeowner Exemptions at the Local, County & State Levels

Did you know that many jurisdictions offer various “homeowner exemptions” that have the real effect of reducing or possibly eliminating your real estate taxes?

The exemptions vary from state to state—county to county—and in many cases city to city. However, they are available and it is your responsibility to search them out in your area and take full advantage of them.

Basic Homeowner Exemptions, Age Homeowner Exemptions, Military Homeowner Exemptions and many others are available. Again it is up to you to find and enroll in them as they are in many cases—not highly advertised. Most have filing deadlines, so immediately after your home purchase be sure to inquire. If you used a real estate agent in the purchase of your home, your agent should be aware of the filing procedure in your area.

Conclusion

Be sure you are aware of what you can deduct or utilize in other ways (tax strategies) at the local, county, state and federal level. Be sure to take advantage of all homeowner exemptions that are allowed in your jurisdiction that you are entitled to. All of the strategies or options discussed in this post require that you own your property as an owner (personal residence) and the strategies are not designed for rental or other non-owner occupied properties.

You must always realize that you have a unique tax filing position and what may be effective and work for someone else may not work for you!

For example, if your AGI (Adjusted Gross Income) is $70,000 and someone else’s AGI is $40,000 and you go out and purchase $20,000 worth of solar panels and the person with $40,000 AGI does the same—you may be in position to utilize the credit either partially or in full, while the person with $40,000 of income might not be able to utilize the credit at all.

This type of scenario can play out in many areas of the tax code—therefore effective planning with experienced tax professionals may be to your advantage.

Your income, family size, deductions, exemptions, education expenses, number of jobs, tax with-holdings, tax payments etcetera are uniquely your own—therefore effective analysis must be performed.

Be sure to put into action your new found knowledge about the Homeowner Tax Breaks & Strategies that you can possibly take—or make to ensure a more prosperous and productive future for yourself and your family.

As you move forward be sure to make a sincere effort to give it your best at all times and it is the desire of TheWealthIncreaser.com that this page has played some small part in empowering you to look at your tax situation in a more critical manner whether you are now a homeowner or you anticipate becoming one in the future.

It is important that you proactively look at your tax situation (you must get out in front of your taxes) and not look back “for answers” after you have encountered a difficult situation. If you do not take the initiative to proactively attack your tax situation or any other area of your finances–you are making life on earth much more difficult than it should be for yourself and your family.

Don’t be afraid to get planning advice on the front end (even if you have to pay as it can be money well spent) as most planners (or those who operate at the top of their profession) are aware of strategies that you may not be aware of.

It is the hope of TheWealthIncreaser.com that this page has sparked something within you to make you look at your taxes and finances in a different way, so that you can start on a serious path to achieving your dreams—starting today!

All the best…

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