Every homeowner should assess which tax breaks they qualify for specifically. The five mentioned in this review are often the most applicable and widely available. By taking advantage of tax breaks that you qualify for in 2021, you can save you and your family a fair amount of money.
What is a tax break?
A tax break reduces the amount of tax you would otherwise have to pay. The purpose of a tax break is to incentivize taxpayers to make certain purchases, which stimulates the economy and leads to overall economic growth. There are many tax breaks for homeowners as it creates opportunities for many businesses and makes owning a home more affordable.
5 types of tax breaks for homeowners
There are more than a dozen tax breaks for homeowners. You may not qualify for every tax break. However, there are some more notable ones to consider. This includes mortgage interest deduction, mortgage points deduction, mortgage insurance deduction, home office deduction and energy-saving credit.
Mortgage interest deduction
This is perhaps the most common tax break for homeowners. The mortgage interest deduction allows you to deduct the interest that you pay on your loan. The amount you save can be used to build, purchase or make improvements to your home. The amount you are allowed to deduct depends on a variety of factors, including the date of the mortgage, how the savings from the tax break are used and the amount of the mortgage. Some homeowners are able to deduct all of their paid mortgage interest.
Mortgage points deduction
Homeowners can also deduct mortgage points that were paid during the home closing process. Mortgage points, also called discount points, are a form of prepaid interest that can save homeowners money on their monthly mortgage payments. Mortgage points are also tax-deductible. However, to cash in on the mortgage points deduction, homeowners must remain in the home for a specified amount of time.
Mortgage insurance deduction
Mortgage insurance is often required to protect the lender in case the homeowner is unable to make payments and the home goes into default. Homeowners who pay mortgage insurance may qualify for a deduction if their adjusted gross income of the home does not exceed $100,000. Homeowners whose gross income is above this threshold do not qualify. This tax break should be available for all of 2021.
Home office deduction
Many are working from home due to the pandemic. If you have an office inside your home that is used purely for work purposes, then you may qualify for a home office deduction. There are two different methods for this, which involves either determining the percentage of your home that is used as an office or deducting $5 per square foot of office space.
The residential energy-efficient property credit applies to homeowners that make energy improvements to their home. This can be in the form of installing solar panels, wind turbines and other energy-efficient items. Homeowners can receive as much as 30% of the energy improvement cost in tax breaks.
EXIT Realty Bob Lamb & Associates is Murfreesboro’s most innovative real estate team.
EXIT Realty Bob Lamb & Associates
2630 Memorial Blvd, Murfreesboro, TN 37129