Top Homeowner Tax Deductions That Decrease Your Tax Burden
You can’t avoid paying taxes, and we all need to pay our
fair share. However, paying your fair share shouldn’t place an unjust burden on
you. As a homeowner, your tax burden is doubled because you pay both income and
property taxes. To decrease that burden and boost your tax savings, take
advantage of these homeowner tax deductions. As a result, you can use your tax
savings to go on a vacation, increase your child’s college fund, build upon
your retirement fund, or complete another home improvement project.
Home Improvement Tax Deduction
You spend so much of your time at home, and you try to make
it as comfortable a place to live as possible. If your home needs some
upgrades, consider improvements that will help foot the bill for themselves.
You can get an energy-efficient tax credit of up to $500
for installing storm doors and energy-efficient insulation and air-conditioning
and heating systems. Switching out your old windows for energy-efficient ones
could earn you $200. This credit expires this year on December 31st.
So, this year will be your last chance to take advantage of getting tax credit
for making your home more energy efficient.
Also, installing equipment that uses renewable sources of
energy makes you eligible for the Renewable Energy Efficiency Property Credit.
The credit covers 30 percent of the cost of equipment and installation. This
credit also expires this year on December 31st.
Mortgage Interest and Refinancing
If your mortgage payment makes you cringe each month,
you’ll be glad to know you can deduct taxes on the following:
* Interest towards mortgage
* Mortgage payments for additional property
* Rental properties
* Refinancing and home equity lines of credit (HELOC) up to
$100,000 of debt.
If you own multiple properties, the mortgage interest on
additional property is deductible as well. The cool thing is that it doesn’t
have to be a house. It can be a boat or RV; as long as it has cooking,
sleeping, and bathroom facilities, it counts as additional property.
Regarding using your second home as a rental, you need to
vacation at least 14 days at the property or spend more than 10 percent of the
number of days you rent it out.
Furthermore, you can claim points on your mortgage the year
you paid them if the following happened:
* The loan was to purchase or build your main home
* Payment of points is an established business practice in
your area and the points were within the usual range
Property Taxes
Now, this is the big one. Property taxes you pay each year
are tax deductible. The amount of property taxes you paid for the year shows up
on your lender’s annual statement. You must deduct them as an itemized expense
on your Schedule A tax form.
First-time homebuyers, look at your settlement sheet to see
additional tax payment data. You may deduct the portion of property taxes you
paid during the first year of your homeownership.
Protesting Your Assessment to Lower Your Property Taxes
Although you must pay property taxes, you can make sure
that you pay a reasonable amount based on the true value of your home and land.
Many homes get overvalued because assessors err in valuing a home and
homeowners don’t pay attention to these mistakes. Consequently, homeowners
unwittingly pay more than they should in property taxes.
However, if you’ve owned your home for more than a year,
you can potentially lower your property tax burden by showing that your home
has been overvalued, meaning that your tax assessment claims your property is
worth more than it is.
Even if the number on the tax assessment seems close, you
should still consider protesting your property tax. Typical savings from a
successful tax protest is over 15%!
According to SmartAsset,
the national median property tax paid is roughly $2,839.00. That’s about 1.192
percent of a home valued at $238,200.00.
If you’re able to reduce your assessed value by 15 percent
to $202,470.00 and consequently save 15 percent on your tax bill, your new tax
bill will be about 2,413.00. That’s a savings of $426.00!
To get started protesting your property tax, read your
assessment letter. Your assessment letter will list data about your property
and the assessed value of your house and land. Make sure your assessment letter
has the correct information about your property.
Understanding that assessors can make mistakes assessing
your home value will help you with your appeal. There are three key mistakes
assessor make when assessing property. These mistakes include:
Outdated
Historic Sales Data: Sometimes assessors will use
sales data from previous years. Because the real estate market is fluid,
this data changes quickly, as a result; this data can over value your
home.
Mass
Appraisal Methods: Also, when assessors use mass
appraisal methods, they do not take into account all the market
adjustments that occurred over time. Consequently, there sales data can’t
always produce useful comparable properties to set future sales.
Living
Area: Assessors notoriously make mistakes about the living
area of your house. This is especially true if you live in a 1.5 or 2
story home. Check any previous appraisals to ensure correct measurements
and description of our home. Does the assessment letter show the right
number of bathrooms and bedrooms? Does it report the correct size of your
lot? .5 acres differs greatly than 5.0 acres.
After reading your assessment letter, consult a Realtor. We
can find three to five approximate values of comparable properties similar to
yours, and these comps can then be used to support your claim that your home is
overvalued. This is especially useful if the assessor used poor historical
sales data.
You’ll have 30 days to file an appeal of your assessment,
so you’ll want to get the comps as soon as your assessment arrives. You can
speak with an assessor on the phone or request a formal review.
You’ll then need to fill out a form and follow specific
instructions regarding your supporting evidence. Typically, it’s not necessary
for you to appear at the review. The review can take one to three months to
complete, and you’ll receive a decision in writing.
The majority of assessment appeals are successful. However, if at first you
don’t succeed, appeal. You’ll need to pay a small filing fee for an independent
appeals board to hear your second appeal. This process could take up to a year
to complete, so you’ll need to decide whether it’s truly worth it.
As a homeowner, you have plenty of options available to
decrease your tax burden. The benefit is that you can use your tax savings for
major life events such as weddings, vacations, and home improvements.
To find out more about your tax saving options as a
homeowner, check out tax information for homeowners.
You can also contact me directly and I’ll gladly lead you in the right
direction towards saving you money on your taxes.
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