Tax Benefits for Homeowners
Perhaps you didn’t realize it, but many tax breaks have a life span of only one year.
Technically, a lot of tax credits and deductions expired on Dec. 31, 2016—which means as a homeowner, you want to lock in whatever home-related tax benefits you can when you file last year’s return. Granted, it’s certainly possible these tax benefits could be renewed for 2017, as they have been in past years. But with a new president in office and plenty of changes afoot, who knows?
If you weren’t aware of these financial bonuses, you could save a bundle by reading on. Here are some homeowner tax breaks to take now—before it’s too late!
Private mortgage insurance
“One significant change to the tax code is that the mortgage insurance deduction expired,” says Wendy Connick of Connick Financial Solutions. Mortgage insurance is what you pay your lender each month if you put down less than 20% on a home. And given that mortgage insurance typically costs 0.3% to 1.15% of your home loan, this can add up quickly. The good news is the premium you paid in 2016 can be deducted from your taxable income.
Keep in mind, however, that this deduction doesn’t apply to any loan issued before Jan. 1, 2007 according to Brian Ashcraft, director of compliance at Liberty Tax Service. The deduction also comes with limits. If your adjusted gross income is higher than $100,000 ($50,000 for married individuals filing separately), the deduction is reduced, and if your adjusted gross income exceeds $109,000 ($54,500, if married filing separately), you don’t qualify for the deduction.
‘Green’ home improvements
The Residential Energy Efficient Property credit lets you offset what you owe the IRS, dollar for dollar, up to 10% of the amount you spent on your qualified energy-efficiency upgrades.
So don’t miss out on this sweet little tax credit for any “green” updates you made to your home last year, says Michael Banks, founder of Fortunate Investor.com. This includes everything from a new HVAC system to energy-efficient windows and storm doors. Since these credits expired at the end of 2016, “if you don’t include them now, you won’t be able to claim them next year."
On the downside, there’s a lifetime limit of $500 for this credit. But on the bright side, the right improvement could lower your utility bills indefinitely.
Forgiven mortgage debt
When you go through a short sale, foreclosure, or loan modification, your lender typically lets you off the hook for some or all of what you still owe on your mortgage.
The catch? That forgiven mortgage debt is usually seen as income—and that means you have to pay income tax on it. For example, if your lender agreed to let you short-sell your home for, say, $50,000 less than you owed on the mortgage and forgave you for the balance, you’d owe income tax on that $50,000.
However, under the Mortgage Forgiveness Debt Relief Act, which expired at the end of 2016, homeowners experiencing financial distress caught a break. No taxes were levied on discharges of indebtedness for up to $2 million for married taxpayers filing jointly and up to $1 million for a single or married taxpayer filing a separate return.
Please keep in mind we are NOT accountants nor tax experts. Make sure you talk to your professional team. However, we don't want you to miss a thing.