Today is Tax Day, which means we’ll be talking about how your home gets factored into those sometimes confusing IRS forms. Ever wondered how additions to your home like a deck can lead to deductions or credits? Or how your taxes are affected by increases/decreases to the value of your home? Let’s find out.
Home Deductions and Credits
Before we dig into a few specifics here is a rundown of all the home-related deductions and credits you may come across.
Factors That Affect the Amount Owed
- Whether you are the head of the household
- Whether you profit from rental income
- Where the home is located
- Whether home is used for business, i.e. farming, home office
- Energy efficiency improvements – There are a number of upgrades, additions and improvements that qualify you for tax credits. However, energy star appliances, low flow toilets and low flow showerheads don’t count.
- Energy credit carry forward – You are only allowed a maximum of $500 credit for energy efficiency improvements each year. If you qualified for more than $500 last year then the remainder gets carried over as a credit this year.
- Mortgage interest credit certificate
- D.C. first-time homebuyers credit
- Repayment of the homebuyer credit – For those who bought in 2008, 2009, 2010 and 2011
- Home office deduction
- Property tax deduction – These taxes can be deducted on all properties you own except those that are used for business or as a rental. If you pay taxes through your mortgage company this will be included on the 1098 form.
- Mortgage interest – If you pay interest on a home loan this will be listed on a 1098 form sent by your mortgage company.
- Mortgage insurance – If you pay mortgage insurance on a home loan this will be listed on a 1098 form sent by your mortgage company.
- HOA assessment fees – Only deductible if the home is a rental.
How the Value of Your Home Affects Your Taxes
When it comes to home value it’s all about the property taxes. These taxes are calculated based on a number of factors and it varies from state to state and county to county. However, the property tax value isn’t necessarily going to be the market value, what the home would sell for if it were to be put on the market.
Several common valuation approaches include the cost approach, sales comparison approach and income approach. Your home value can depreciate over time or appreciate based on improvements that are made, increases/decreases in the cost of construction and more. You’ll need to check with your county’s property appraisal office to learn exactly how your home valuation is determined.
A well-made deck will undoubtedly add to the value of your home. This in turn could raise the taxable value leading to slightly higher property taxes. As mentioned above, property taxes get deducted from the overall amount that you owe the IRS.
These are just the basics for how your home factors into your taxes. If you have specific questions about home-related taxes it’s best to enlist the help of a professional accountant.
Images Source: flickr.com/photos/68751915@N05/6848820425