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. You may be entitled to a tax credit of up to $500 if you installed energy-efficient windows, skylights, doors or other qualifying items in 2018-2020. Federal tax credits for certain energy-efficient improvements to existing homes have been extended through December 31, 2020. ¹
Also, installing equipment that uses renewable sources of energy makes you eligible for the Renewable Energy Efficiency Property Credit, a percentage of the cost, ranging from 22-30 percent. Items include solar electric property, solar water heaters, geothermal heat pumps, small wind turbines and fuel cell property. Only fuel cell property is subject to a limitation, which is $500 with respect to each half kilowatt of capacity of the qualified fuel cell property. Generally, this credit for alternative energy equipment terminates for property placed in service after December 31, 2021. ²
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
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. ³
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, along with various other closing costs. ⁴
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, their 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-story 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.
For those of you who may have friends or relatives outside our area who need a Realtor, I’m happy to do some behind the scenes screening and recommend a good agent or two to them. No cost to you or your friends, of course. Learn more here.
As always, find me at 626-290-1250 or MaryAnglin.Realtor@gmail.com
- Anderson Windows –
- Internal Revenue Service –
- Investopedia –
- Smart Asset – https://smartasset.com/taxes/are-closing-costs-tax-deductible