US tax law allows for real estate deductions, including mortgage interest, home repairs, and home office expenses. Deductions for home improvements and moving expenses are also available. It is recommended to seek advice from a CPA to navigate these deductions.
United States tax law provides for several real estate deductions. In general, there are more real estate deductions available to a homeowner than to someone who rents their residence. One of the largest deductions that can be taken is for mortgage interest. Home repairs often apply as well, as does interest on a second mortgage taken out to pay for the repairs. When preparing a tax return, real estate deductions can add up significantly, reducing one’s tax liability and potentially saving a great deal of money this way.
As mentioned, the best known of all real estate deductions is for mortgage interest payments. A portion of each mortgage payment comes from the interest earned on the loan over the past month. This amount can be added to and deducted from a homeowner’s tax liability, providing significant savings, especially for new homeowners. However, the longer you pay on a mortgage, the less valuable the deduction becomes, because as the loan balance decreases, so does the part of the monthly payment that represents accrued interest. If you decide to pay off your mortgage before your term is up, you may be subject to a prepayment penalty, but this penalty is also tax deductible.
Real estate deductions are available for people who use part of their home as an office, if they use it only for business purposes. In this case, the percentage of the home that the office occupies is the percentage of utility and repair bills that can be deducted. These household costs cannot be deducted in other circumstances.
Home repairs and improvements are tax deductible in many cases. For example, if your home is damaged in a natural disaster or burglary, and the damage is not covered by insurance, the repairs are fully deductible. In the case of a natural disaster area that receives federal assistance, the previous year’s tax return can be modified to claim the loss. If the damage is partially covered, some rules apply, but usually a deduction is still available. Home improvements may also qualify, so it’s a good idea to save receipts for purchases that got you to finish a basement or install a backyard pool, as they can be used to reduce capital gains tax that applies when you sell the house.
In certain circumstances, it is possible to deduct moving expenses if you move for work. Essential expenses incurred during the move, such as hotel rooms and moving vans, can often be deducted, and these can add up to a large sum as well. When it comes to itemizing these deductions, as well as those for home improvement projects, the advice of a certified public accountant (CPA) can be invaluable. Otherwise, the tax laws governing deductions can quickly become confusing.
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