Homeowner Tax Breaks that Could Save You
Thousands this Year
As a homeowner, there are several major tax credits and deductions for which you may be eligible. They could save you up to thousands of dollars, so be sure to take advantage of them if they apply to you. Below is a list of the most important options for homeowners to save big on their taxes:
Mortgage Interest Deduction (MID)
The MID is probably the most important deduction for homeowners. It allows most people to deduct all of the interest they paid on first and second mortgages as well as home improvement loans on first or second homes. There are, however, limitations to MID that affect certain homeowners:
There is a cap on the amount of interest you can claim. You may only deduct interest on less that $1,000,000 ($500,000 if filing separately) of your mortgage on your main home and/or secondary residence.
A loan taken out for reasons other than to buy, build, or improve your home may qualify as home equity debt. In this case, you can deduct the interest paid on the loan as long as the principal totaled less than $100,000 in 2015.
Private Mortgage Insurance (PMI)
You may be able to deduct the premiums you paid on PMI in 2015 as mortgage interest, including the upfront premium required by FHA. The major requirement for eligibility for this deduction is that your insurance contract must have been issued after 2006. This deduction may not apply to payments made in 2016 because Congress only extended PMI deductibility on a one-year basis.
Home Improvement Tax Credits
For 2015, certain home improvements in the form of alternate energy sources may also qualify for tax credits worth up to 30 percent of the cost of the necessary equipment. These items include solar hot water heaters for up to a $2,000 credit, solar electric equipment for up to a $2,000 credit, and wind turbines and fuel cells for up to a $500 credit for each .5 kilowatt of capacity.
Mortgage Forgiveness Relief
This act was created to help those homeowners who negotiated mortgage modifications in order to save their homes from foreclosure during the housing crash. The forgiven debt was taxed as income until it was rendered tax-free by the Mortgage Forgiveness Debt Relief Act of 2007. The act has been extended each year since its original expiration date in 2012 and has now been extended until December 31, 2016. The extension covers cancelled mortgage debts from 2015 and mortgage modifications in 2016. This means that if you modified your mortgage in either 2015 or 2016, you won’t need to declare any of the mortgage principal forgiven by your lender as income.