Despite heading into the winter season, preparations you take today could make the springtime a little brighter, in terms of tax time savings. For homeowners, itemizing your taxes can help you get a little extra in savings, as you can claim interest that you’ve paid on your first and second mortgages, up to $1.1 million, as a deduction. The debt total includes a $1 million in mortgage loans and an additional $100,000 in home-equity loans, which aren’t required to be used solely to improve upon the home’s condition.
If you’re a homeowner with a large mortgage, these deductions can prove to be rather valuable. In high price areas, homeowners with mortgages in excess of $625,000 ($417,000 in regular markets) can see a very useful benefit of tax savings. For example: a joint filing couple who fall into a 33% tax bracket has an income under $309,900. They pay $30,000 in mortgage interest, which could net them a tax benefit of up to $9,900.
Interest deductions also apply to second home mortgages. Boats, mobile homes, and other structures with qualifying plumbing like showers and toilets can be considered a second home. Lots that are secured for the building of a retirement home don’t qualify, as often times they are empty. Those who own second homes can deduct maintenance, insurance, and property fees on their home even if they rent it out to tenants. However, they should set up a separate bank account for rental income.
In addition to claiming mortgage interest, there are other home-related expenses that can help put a little extra in your wallet at tax time, provided you have documentation. If your home qualifies as a home-office, there are some expenses that can be written off for taxpayers who work from home.
Sometimes, a business owner can rent their home to the business for the purposes of conducting a meeting or training session. The IRS doesn’t require you report income from rent if it’s less than two weeks’ worth out of the year, which means the business owner can deduct the rental fee as an expense on their tax return.
In 2015, the IRS is phasing out Schedule A itemized deductions for taxpayers who have an adjusted gross income higher than $258,250 for a single filers, or $309,900 for married couples. Typically, itemized deductions range from mortgage interest and state taxes, to medical bills and donations made.
The tax status that you file under can make a difference. Unmarried couples that each own a home and choose to file separately are eligible for up to $1.1 million each. On the other hand, couples who are married and choose to file separately are only eligible to receive a mortgage interest deduction of up to $500,000 in home debt.