There are many advantages to owning a home versus renting one. One of the most significant reasons is the tax savings owning a home provides. As the year comes to a close, here are some tax savings eligible homeowners can use for the 2015 tax year.
- Mortgage Interest Deduction. This is a deduction you will claim on Schedule A. To take advantage of this deduction, your mortgage must be secured by your home. Interest you pay on a mortgage is deductible when you use the loan to buy, build or improve your home. This interest can be deductible on a mortgage of up to $1,000,000, or $500,000 if you and your spouse are filing separately. If you take a second mortgage on (via a second mortgage, a home equity loan, or a home equity line of credit), that will count toward the $1,000,000 limit. See more on this deduction at IRS.gov.
- Mortgage prepayment penalty. If you pay off your home mortgage early, you may have to pay a penalty. The good news is that you can deduct the penalty as home mortgage interest provided the penalty is not for a specific service performed or cost incurred in connection with your mortgage loan. See more on this deduction at IRS.gov
- Property tax deduction. You can deduct real estate property taxes you paid at settlement or closing, or to a taxing authority during the year. Enter the amount paid on Schedule A. See more here.
- Private mortgage insurance deduction. If you purchased your home with less than 20% down, you have to pay private mortgage insurance. This deduction was extended one more year, so if you meet the income limits, you can deduct the PMI you paid this year.
- Energy tax credit. This is another tax credit that was extended another year. Homeowners are eligible for a tax credit of up to $500 if they make home improvements that save energy in their primary residences. Eligible improvements include things like replacing your roof, installing energy-efficient windows, or getting a new air conditioning system or furnace. Generally speaking, the credit is 10% of the cost of the improvements, up to $500, but of course, there are limitations.
- Residential renewable-energy tax credit. In 2015, you may qualify for a federal tax credit for the purchase of certain geothermal heat pumps, small wind turbines (residential), solar energy systems and fuel cells. See EnergyStar.gov for details.
For more information on allowable tax credits and deductions, see the IRS’s 2014 guide for Tax Information for Homeowners. This will provide some guidance, but you’ll need the 2015 guide to help you prepare your 2015 guide. You will also want to consult your tax advisor to see which of the credits and deductions apply to you.