Tax deductions are important because they can lower your overall tax liability. Real estate taxes are deductible, which means that you can deduct the amount you paid in real estate taxes from your taxable income. This can reduce your tax bill significantly, especially if you own a lot of property or have a high income.
Real estate tax deductions are also important because they can help you keep more of your hard-earned money. By deducting the amount you paid in real estate taxes, you’re effectively lowering the amount of money you have to pay in taxes. This can leave you with more money to save or invest, which can help you build wealth over time.
Real estate tax deductions can also help stimulate the economy. When people are able to deduct the amount they paid in real estate taxes, they’re more likely to invest in property. This investment can lead to more economic activity and growth, which can create jobs and help improve the overall quality of life in a community.
Today, we walk through the 10 popular real estate deductions that you can use:
1. Mortgage Interest
One of the most popular real estate tax deductions is mortgage interest. This deduction can be claimed for interest paid on both primary and secondary residences. In order to claim this deduction, taxpayers must itemize their deductions on Schedule A of their federal tax return.
2. Property Taxes
Another popular deduction for those who own real estate is property taxes. This deduction can be claimed for state and local property taxes paid on both primary and secondary residences. Like the mortgage interest deduction, taxpayers must itemize their deductions on Schedule A in order to claim this deduction.
3. Capital Gains Exclusion
For those who sell their home, the capital gains exclusion can provide a significant tax break. This exclusion allows taxpayers to exclude up to $250,000 ($500,000 for married couples filing jointly) of the gain from the sale of their home from their taxable income. To qualify for this exclusion, taxpayers must have owned and used the home as their primary residence for at least two of the past five years.
4. Energy-Efficient Home Improvements
Taxpayers who make energy-efficient improvements to their home may be eligible for a tax credit. The credit is generally equal to 10% of the cost of the improvements, up to a maximum credit of $500. Qualifying improvements include insulation, energy-efficient windows and doors, and certain types of heating and cooling systems.
5. Home Office Deduction
For those who work from home, the home office deduction can provide a significant tax break. This deduction allows taxpayers to deduct a portion of their mortgage interest, property taxes, insurance, and utilities as business expenses. To qualify for this deduction, the home office must be used exclusively for business purposes and it must be the primary place of business.
6. Moving Expenses
Taxpayers who move due to a change in job location may be eligible to deduct their moving expenses. To qualify for this deduction, the move must be at least 50 miles away from the taxpayer’s former home and the new job must last at least 39 weeks. The moving expenses that can be deducted include travel costs, storage fees, and the cost of moving household goods.
7. Investment Property Deductions
For those who own investment property, there are a number of tax deductions that can be claimed. These deductions include mortgage interest, property taxes, depreciation, and expenses associated with maintaining the property. To claim these deductions, taxpayers must file Schedule E of their federal tax return.
8. Passive Activity Losses
For those who own rental property, the passive activity loss rules may limit the amount of losses that can be deducted against other income. These rules apply to all rental activities, regardless of whether the taxpayer actively participates in the activity. In general, the losses from each rental activity are only deductible if the taxpayer has offsetting income from other passive activities.
9. 1031 Exchange
For those who sell investment property, the 1031 exchange allows them to defer paying capital gains taxes on the sale by reinvesting the proceeds into another investment property. To qualify for this exchange, the new property must be “like-kind” to the property that was sold and the taxpayer must complete the exchange within 180 days.
10. Mortgage Insurance Premiums
Taxpayers who have private mortgage insurance (PMI) can deduct the premiums as interest on their federal tax return. To qualify for this deduction, taxpayers must itemize their deductions on Schedule A of their return. The deduction is available for both primary and secondary residences.
These are just some of the most popular real estate tax deductions. For more information on these and other deductions, taxpayers should speak with a qualified tax professional.
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