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Four Little-Known Tax Deductions for Homeowners

April 15 is fewer than two months away, and you could use all the tax advantages homeownership has to offer, right? To that end, here is a list of four easily-overlooked deductions available to homeowners.

First, a disclaimer: We at HomeWise are in no way tax experts. Please consult a professional tax preparer to be sure you are applying deductions accurately.

  1. Home Office Deduction

If part of your property is dedicated to the regular operation of your trade or business, storage of business inventory, operation of a daycare, or rental use, you can take a deduction based on the total expenses of the home multiplied by the percentage of space used for business or based on a flat $5 per square foot of dedicated business space. For instructions on this deduction, see IRS Publication 587.

  1. Home Improvements for Medical Reasons

The cost of renovations to accommodate the disabled or chronically ill could qualify as a medical expense deduction to the extent that they, together with all your medical expenses, exceed 10% of your adjusted gross income (7.5% if you or your spouse are 65 or older). For a fuller explanation, see IRS Publication 502.

  1. Home Mortgage Points – Even if the Seller Paid Them

Yup. That’s right. If you purchased a home, points paid at closing are likely deductible by you, the buyer, regardless of whether you or the seller paid them. Whether you can deduct them all in the same year or have to spread them over the life of the loan depends on whether you meet certain criteria. You can similarly deduct points paid for home improvement loans. Refinance loan points may only be deducted over the life of the loan. IRS Publication 936 explains it more fully.

  1. Mortgage Insurance Premiums

If you purchased a home with less than 20% down, you probably are paying for private mortgage insurance (the lender’s hedge against you defaulting on the loan.) [As an aside, if you can demonstrate that your current loan principal is less than 80% of the property value, you can petition your lender to get the PMI removed.] Congress has extended through the end of 2016 the deduction for qualified mortgage insurance premiums (including mortgage insurance premiums on reverse mortgages in certain situations), as long as your adjusted gross income doesn’t exceed $109,000 (and your deduction is phased down for every $1000 of income between $100,000 and $109,000). The Mortgage Insurance Deduction is also explained in IRS Publication 936, referenced above.

Wise homeowners pay all the taxes they owe, but none that they don’t. Now, go forth and deduct fully!

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

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