As a homeowner in Washington State, understanding and taking advantage of tax benefits can lead to significant savings. Below is an overview of some of the major tax breaks for most people. Take a look and see which of these benefits you may be eligible for:
MORTGAGE INTEREST DEDUCTION:
You can typically deduct the interest paid on their mortgage. The amount of deduction depends on when the mortgage was taken out. For instance, on mortgages before October 13, 1987, a homeowner could deduct all interest; on mortgages between October 14, 1987, to December 15, 2017, a homeowner may deduct interest on up to $1,000,000 of the mortgage amount ($500,00 if married and filing separately); and for any mortgages on or after December 16, 2017, up to $750,000 of the loan amount ($375,000 if married and filing separately).
PROPERTY TAX DEDUCTION:
Homeowners can deduct property taxes on any property they own, regardless of whether it is a primary residence or not. However, the combined total for state and local taxes is capped at $10,000 annually. This limit applies regardless of filing status.
POINTS PAID ON MORTGAGE:
Points, or prepaid interest, paid at closing to lower your mortgage interest rate are also deductible. However, to qualify for a full deduction in the year paid, certain criteria must be met, such as the loan being for your primary residence and the points being within the usual range for your area. If these conditions aren’t met, the deduction may need to be spread over the life of the loan.
NECESSARY HOME IMPROVEMENTS
Certain home improvements that are deemed necessary may also be an eligible tax break. These include:
- Improvements for Medical Reasons: Any improvements made for medical reasons that benefit you, your spouse or a dependent, such as constructing ramps, installing railings and support bars, or widening doorways, may be fully or partially deductible.
- Capital Improvements: Permanent upgrades that add value to your home, prolong its life, or adapt it to new uses may also be deductible as long as they are deemed necessary.
- Energy Efficiency Upgrades: Certain energy-efficient improvements, such as installing solar panels or energy-efficient windows, also qualify for tax breaks provided you are not receiving a subsidy or tax credit for installing them otherwise.
CAPITAL GAINS EXCLUSION ON SALE OF PRIMARY RESIDENCE
When you sell a home, and if the said home was used as a primary residence for two out of the last five years before the sale, you may exclude up to $500,000 of capital gains, if married filing jointly, or up to $250,000, if single or married filing separately.
SITUATIONAL DEDUCTIONS:
- Rental Properties: If you own rental properties, expenses such as repairs and Homeowner Association (HOA) dues are eligible deductions from your rental income. However, if you also reside in the property, these deductions may be limited.
- Home Offices: For those using part of their home exclusively for business purposes, a portion of expenses such as utilities, repairs, insurance, maintenance, and HOA dues related to that space may be deductible. It is, however, essential for the homeowner to meet the two-fold IRS criteria: i.e. the space (a) is exclusively and regularly used; and (b) is the principal place of business for the taxpayer.
Since navigating these deductions and credits can be complex, I highly recommend consulting with a tax professional to ensure you are maximizing your benefits while complying with all applicable laws and regulations.