Congratulations on becoming a new homeowner! Buying a home is an exciting milestone, but it also comes with new responsibilities, including filing your taxes differently. As a homeowner, you may be eligible for various tax deductions and credits that can help lower your tax bill. In this blog post, we’ll cover everything you need to know about filing taxes 2024 as a new homeowner.
Read our advance blog on Ways to Financially Prepare for Living Alone
Tips To Filing Taxes 2024 As New Homeowner
Following are quick tips for filing taxes 2024 as a new homeowner:
1. Mortgage Interest Deduction
One of the most significant tax benefits of owning a home is the mortgage interest deduction. You can deduct the interest you pay on your mortgage from your taxable income, which can result in substantial savings. For example, if you paid $10,000 is mortgage interest during the year and you’re in the 25% tax bracket, you could save $2,500 on your taxes.
To claim the mortgage interest deduction, you’ll need to itemize your deductions on your tax return. This means you’ll need to fill out Schedule A and list all of your deductible expenses, such as mortgage interest, property taxes, and charitable donations. If your total itemized deductions are greater than the standard deduction, it makes sense to itemize.
Keep in mind that there are limits to the mortgage interest deduction. For mortgages taken out after December 15, 2017, you can only deduct interest on up to $750,000 of mortgage debt ($375,000 if married filing separately). For mortgages taken out before that date, the limit is $1 million ($500,000 if married filing separately).
2. Property Tax Deduction For Filing Taxes 2024
Another tax benefit of owning a home is the property tax deduction. You can deduct the property taxes you pay on your home from your taxable income. This includes any state and local property taxes you pay during the year.
Like the mortgage interest deduction, you’ll need to itemize your deductions to claim the property tax deduction. Keep in mind that there is a limit to the amount of state and local taxes (including property taxes) you can deduct. For 2021, the limit is $10,000 ($5,000 if married filing separately).
3. Mortgage Points Deduction
If you paid points when you took out your mortgage, you may be able to deduct them from your taxes. Points are essentially prepaid interest that you pay upfront to lower your mortgage interest rate. One point equals 1% of your mortgage amount.
You can typically deduct points in the year you paid them if you meet certain requirements. For example, the points must be for your primary residence, and paying points must be an established practice in your area.
If you don’t meet the requirements to deduct points in the year you paid them, you can still deduct them over the life of your mortgage. For example, if you paid $2,000 in points on a 30-year mortgage, you could deduct $66.67 per year for 30 years.
4. Home Office Deduction
If you work from home, you may be eligible for the home office deduction. This allows you to deduct a portion of your home expenses, such as rent, utilities, and maintenance, based on the percentage of your home that you use exclusively for work.
To qualify for the home office deduction, you must use a specific area of your home exclusively and regularly for work. This means you can’t use your living room couch as your office space and claim the deduction.
There are two ways to calculate the home office deduction: the simplified method and the regular method. The simplified method allows you to deduct $5 per square foot of your home office space, up to 300 square feet. The regular method involves calculating the actual expenses of your home office, such as rent, utilities, and maintenance, and deducting a percentage based on the size of your office space.
5. Energy Efficiency Tax Credits
If you made energy-efficient improvements to your home, you may be eligible for tax credits. The Residential Energy Efficient Property Credit allows you to claim a credit for 26% of the cost of installing solar panels, solar water heaters, geothermal heat pumps, and small wind turbines.
The Non-Business Energy Property Credit allows you to claim a credit for 10% of the cost of certain energy-efficient improvements, such as insulation, windows, and doors. The credit is capped at $500 for all years combined.
To claim these credits, you’ll need to fill out Form 5695 and attach it to your tax return.
6. Capital Gains Tax Exclusion
If you sell your home for a profit, you may be able to exclude some or all of the capital gain from your taxable income. The capital gains tax exclusion allows you to exclude up to $250,000 of the profit from the sale of your primary residence ($500,000 if married filing jointly) if you meet certain requirements.
To qualify for the exclusion, you must have owned and lived in the home as your primary residence for at least two of the five years before the sale. You also cannot have claimed the exclusion on another home in the two years before the sale.
If you don’t meet these requirements, you may still be able to exclude a portion of the gain based on the amount of time you lived in the home.
Conclusion
Filing taxes 2024 as a new homeowner can seem overwhelming, but it’s important to take advantage of all the tax benefits available to you. By understanding the mortgage interest deduction, property tax deduction, mortgage points deduction, home office deduction, energy efficiency tax credits, and capital gains tax exclusion, you can potentially save thousands of dollars on your taxes.
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FAQs
- What is the mortgage interest deduction?
The mortgage interest deduction allows you to deduct the interest you pay on your mortgage from your taxable income. This can result in substantial savings on your taxes.
- How do I claim the property tax deduction?
To claim the property tax deduction, you’ll need to itemize your deductions on your tax return. This means filling out Schedule A and listing all of your deductible expenses, including property taxes.
- Can I deduct mortgage points?
Yes, you can typically deduct mortgage points in the year you paid them if you meet certain requirements, such as using the points for your primary residence and paying points being an established practice in your area.
- How do I qualify for the home office deduction?
To qualify for the home office deduction, you must use a specific area of your home exclusively and regularly for work. There are two ways to calculate the deduction: the simplified method and the regular method.
- What is the capital gains tax exclusion?
The capital gains tax exclusion allows you to exclude up to $250,000 of the profit from the sale of your primary residence ($500,000 if married filing jointly) if you meet certain requirements, such as owning and living in the home for at least two of the five years before the sale.
