Tax Preparation and Home ownership can be one of the greatest satisfactions, yet comes with numerous upfront expenses. Luckily, the IRS offers several tax tax preparation service Shallotte NC breaks that help make homeownership more cost-effective. However, in order to claim these deductions you must itemize instead of taking the standard deduction. Common home-related tax deductions include mortgage interest and property taxes; other potential savings could come from private mortgage insurance premiums as well.
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Mortgage interest payments are a significant portion of monthly homeowner payments. They can offer a tax break if you itemize your returns rather than take the standard deduction. This will result in fewer taxes overall. Unfortunately, homeowners must take the time and effort to claim this benefit in order to reap its full value. Unfortunately, however, this benefit doesn't happen automatically--they must take the initiative themselves in claiming this deduction! It takes more work, but it will give you bigger tax breaks.
According to the IRS mortgage interest can only be deducted if it was paid to purchase, build or substantially improve your primary or secondary home. This can include refinancing debt secured by either your primary home or second home and home equity loans and lines of credit that serve the same purpose; only interest on improvement-related debt meets certain tests (like adding square footage or changing use).
Mortgage points are upfront fees charged by lenders in order to reduce your interest rates and therefore decrease monthly payments. They can also be deducted on Schedule A, as pre-paid interests. To qualify, your effective interest rate must be reduced by at least 1%.
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One of the primary expenses associated with home ownership is paying property taxes to your local government. While these taxes may seem costly, they're tax deductible and can help offset some of the high cost of homeownership in certain regions. To take advantage of the deduction, homeowners must itemize and exceed their standard tax deduction.
State and local income, sales and property taxes can also be deducted by homeowners who itemize, up to an annual maximum limit of $10,000 ($5,000 for married filers filing separately) of combined state and local taxes deductible as itemized deductions; this does not apply to transfer taxes or homeowners association fees that typically count towards closing costs deductions.
If you use part of your home for business use, such as an office or studio, expenses related to that use could be tax-deductible. This deduction is available for single-family homes, townhouses apartments, condos, co-operative apartments and even mobile and manufactured houses!
Tax deductions may be available for medically necessary home improvements, such as grab bars in the bathroom or wheelchair ramps. You may also benefit from energy efficient upgrades like solar panels or wind turbines; however, in order to take advantage of this deduction you must obtain a letter from your physician certifying the improvement as medically necessary.
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The IRS allows you to deduct certain expenses related to a home office. There are two methods you can use for claiming the deduction: regular and simplified. Ultimately, how much of your home is dedicated as an office depends on whether it meets all requirements for deduction (refer to IRS Pub 587: Business Use of Your Home for details).
To qualify for the home office deduction, an area in your home that is used exclusively and regularly to conduct your business or treat patients or clients must be designated as such. It could be any room, an area within a room or even an outlying structure such as a shed, garage or guest house - even an entire structure on your property!
Alternatively, for simpler calculations that don't exceed $300 of expenses you may use the simplified method - just keep receipts for any furniture, appliances or equipment purchased specifically for the office space.
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The IRS allows you to deduct the mortgage points that you pay at closing when you purchase a home using a mortgage. Each point costs about one percent of the loan amount, and it reduces your interest rates by 0.25 percentage points. These deductions are usually spread evenly over the loan period, but under certain conditions can be deducted in one year.
It is better to itemize than take the standard deduction if you want to benefit from the mortgage point deduction. Your lender should issue you an annual 1098 mortgage interest statement which details how much interest was paid as well as an itemized breakdown of any points paid; box 6 of that document shows this figure. Property taxes paid out of escrow can also be deducted, provided that your municipality accepts this method of paying bills.
Home ownership offers you additional tax breaks. These include energy-efficient credits, deductions for home equity loan used to improve your house and meet certain standards and criteria. Improvements must meet specific and significant criteria to qualify. This could include making the house accessible for people with disability or grading it accordingly.
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