MarketWatch sums it up perfectly.... "If death and taxes are the two things you can always count on in life, there probably should be a third: the bucketful of tax breaks Uncle Sam offers every year to encourage more Americans to buy a home."
Your mortgage interest deduction is the biggest tax break a homeowner can receive and is a crucial new homeowner tax credit. If you are married and filing joint, it covers interest on loans paid up to $1 million, and if you are filing separately, it covers up to $500,000.
It does take a little extra work, as you have to itemize on your tax return in Schedule A, to claim this deduction. However, it is well worth it. Simply add up all of your expenses for the year regarding homeownership, (including home improvements). When you claim the mortgage interest deduction, you should save a ton of tax dollars because your itemized deductions will be greater than the standardized deductions.
If you purchased a home in 2016, keep an eye out for Form 1098 that should be arriving in the mail, and make sure you include that in your taxes.
Any improvement that adds value to your home is good for your taxes. This can include an addition, redoing a bathroom, adding a deck or fence, a new roof, or even plumbing. Now pay close attention here -- if you are using the home as your primary residence, these improvements can not be used as tax write-offs. But wait! Most all of the improvements you've made while owning the home will help reduce the taxes you pay when you sell your home and make a profit. Not to mention, who doesn't want to upgrade their house as best they can, while living in it! Think of it as an investment for the future.
Do you use your home as an office? As long as it is a legitimate business, and you do part of your work from home, this is a huge tax write off. Anybody from realtors, graphic designers, writers, doctors.... we even know some stay-at-home moms who own small, part-time businesses like organizing, cake baking, or selling hand-made items. If any of this applies to you, you can deduct 100% of the cost of any improvement or purchase for that business (a new computer, software, bookshelves installed, file cabinets purchased, etc). Be creative, but legal! You can make this work to your advantage!
RENTING OUT PART OF YOUR HOME
Do you have a basement apartment that you rent out? This is a great way to not only save money each month, but to also depreciate the expense as a rental expense.
Another way to depreciate home improvement costs is to rent out a portion of your home. This enables you to depreciate the expense as a rental expense. This amount is deducted from the rental income you receive.
As long as it is a legal apartment, as a landlord, you can take the portion of your home that is used as a rental (either in bedrooms or square feet) and split the expenses. For example, if you own a five bedroom house, and rent out two bedrooms downstairs, you can claim 40% of those shared expenses as business expenses!
Start Working on Those Tax Breaks NOW! Check out these fantastic homes! 👇🏽