We get a lot of questions regarding ways to save money as a home owner of first time home-buyer and truthfully, there's a cloud of mystery surrounding the subject.
"Are home improvements deductible?”
“What about rental income?"
“Do I qualify for savings on my first home purchase?”
“What about refinancing my home?"
Our goal in this article is to demystify the above once and for all and share with you all the deductions, credits, and write-offs that apply to you as a home owner or first time home buyer living in San Diego.
Here’s a list of all the deductions and credits you’ll want to watch out for:
*A quick side-note/disclaimer. While we’ve tried to keep the information below as accurate and informative as possible, it’s important that you consult your CPA as we are not TAX professionals.
This is a quick and easy claim to deduct from your tax that shouldn’t be forgotten. It applies to your first 2 homes as well as second mortgages. It excludes any reverse mortgages and loans over 1 million dollars.
Home owners in San Diego can deduct property taxes each year you’ve owned a home. This only applies to what’s paid to your local government and not any of the extra fee’s that may have been added. If this is your first home, you can deduct property taxes that may have been given back to the seller (or paid in advance).
Energy Efficiency Upgrades
Windows, washers, electric heat pump water heaters, gas water heaters, thermostats, air conditioners, insulation, and many other Energy-Star appliances purchased will get you a tax credit. You can get credit up to 10% back on the purchase of these items (up to a maximum of $500). Here are a list of appliances that qualify for a rebate.
Add A Home Office
If you work from home or have a side-hustle, you could potentially qualify for a deduction of $5 per sq. ft. ( up to 300 sq. ft.). Read up on tax laws or reach out to your CPA to fully understand the ins and outs of your home office. It’s important to note that your home office will be subject to capital gains tax when you sell your home.
Loans taken to fix-up your home to increase its resell value are deductible.
If you’re building a home and take a loan, this is deductible but valid only for the first 24 months that you have that loan. This can only be used on the home you live in or a vacation home. Moving? Associated costs and expenses are also included as a deductible.
Private Mortgage Insurance
If you purchased your home with a small downpayment, you will be eligible for a tax deduction depending on your income level.
Natural Disaster Victim
Damage by a natural disasters in San Diego (if declared as a disaster area) will get you a tax deduction. This applies to the difference between the amount covered by your insurance and the amount of items you lost.
Solar panels, and other renewable energy sources qualify for a tax credit and covers up to 30% of the costs involved.
First Home Purchase
Withdrawals from your IRA to buy your first home have no penalties. This also applies to refinancing your home. This is subject to your mortgage terms and conditions (they can change so make sure you read the fine print!).
If your home is built on land you don’t own, you can deduct the ground that goes to the land owner. This only works if the lease for the land is for more than 15 years and you have been paying annually.
Are you taking advantage of all your tax deductions and credits as a home owner? If not, make notes and action on the above immediately.
Questions? Contact us!