Top Tax Deductions You Shouldn’t Overlook

It’s happening again: Tax Season. One of the worst elements of springtime—an otherwise pleasant time of the year—but one of our favorite things to complain about. There are not many realizations worse than the one that occurs immediately after filing your tax return, when you remember a deduction that would have increased your tax refund or lowered your tax bill on your return. There are plenty of deductions that we all know about, such as charitable donations and just about any business expense under the sun. But there are some lesser-known deductions out there that that individuals (especially homeowners) can take advantage of. Happy Home Insider is here to outline those tax breaks to make the season a little more bearable.

Sales Tax

First up is sales tax. You are given the option of deducting state income taxes or sales tax from your federal income tax return. For states that don’t carry their own income tax, this can result in big savings. This is something to keep in mind even if you’re paying state taxes. The sales tax deduction could potentially be a better deal if you made a substantial purchase over the previous year, such as a car or engagement ring. The deduction must be itemized, but the IRS provides their own tables as a guide.

Mortgage Interest Payments

Mortgage interest payments are next on the list. If you’re going to be itemizing personal deductions, the interest payments on your home mortgage is tax deductible. If your home was purchased on or before December 15, 2017, then you can deduct interest payments on loans used to improve, build, or buy a primary residence or second home up to $1 million. If you purchased after December 15th, 2017, then you can only deduct interest payments on $750,000 of home acquisition debt. That limit will end in 2025, whereupon it will return to $1 million. Both single taxpayers and married taxpayers filing jointly can take advantage of these deductions.

There is also wiggle room with deductions on home equity loan interest, despite the Tax Cut and Jobs Act eliminating the $100,000 home equity loan deduction from 2018 to 2025. The interest paid on a home equity loan used in the renovation, construction, or purchasing of a new home (first or second) is deductible. For instance, if you choose to add a room or make improvements to your home and used your home equity line to do so, that would be tax deductible. The same rates apply as the mortgage deduction limits, $750,000 to $1 million depending on when the home was purchased.

Property Taxes

Property taxes are another underreported deduction on the homeowner’s tax return. The Tax Cut and Jobs Act put a cap on the itemized deductions you can claim for property tax, but from 2018 through 2025 you can deduct a maximum of $10,000 for property tax, and state income, or state and local sales tax. The new limit applies to individuals and married taxpayers filing jointly but won’t be adjusted for inflation. However, something to be cautious of is if your lender required an impound or escrow account. You won’t be able to deduct escrow money reserved for property taxes until the money is actually used to pay them.

If you happen to work from home, that can be another useful deduction to add to your list. You could have a dedicated home office, or just a home work station that you use for business purposes. Any of the following is acceptable to deduct costs associated with that portion of your house. Depreciation, a percentage of insurance costs, and/or repair costs are all applicable.

Selling Costs

Selling costs are another potential deduction that you should not sleep on, especially for multiple home owners. If you’ve recently sold a home, you can reduce the amount of capital gains tax by the amount of selling fees. Sellers fees can add up quickly. There are broker commissions, legal fees, title insurance, escrow fees, advertising costs, and random administrative costs. All of these will be deducted from the gain, which is the selling price of your home minus closing costs, your tax basis in the property, and all of the aforementioned fees.

Finally, there is a program for new home-buyers called a mortgage credit certification (MCC) that allows lower income buyers to take advantage of a mortgage interest tax credit for up to 20% of the interest payments made on a new home. The maximum MCC is $2,000. First, you will have to apply to your local government to acquire the actual certificate. Once you are granted the credit it remains available as long as you are living in the same house and maintain the original loan.

There were plenty of changes to the tax landscape with the Tax Cut and Jobs Act this year. For the best most up-to-date information and resources about your taxes, potential deductions, and real estate laws, you can always visit IRS.gov.