Buying, Selling, and Your Taxes

Laurie WallBuying and Selling

Selling Your Home - Front of Home for Sale with sunset

Tax season is here, and that means it’s time to start assembling everything you need to prepare your returns. It’s important to know and understand the tax deductions and credits that are available to you so that you don’t overpay. Here are six tax breaks for homeowners.

Penalty-Free IRA Withdrawals

If you haven’t bought a home yet, start planning where you’ll get the down payment from. First-time homebuyers and those who haven’t owned a home in two years (thereby re-qualifying for first-time status) can withdraw up to $10,000 from their IRA without having to pay the 10 percent penalty for early withdrawals.

RELATED: 6 Tips for First Time Homebuyers

Mortgage Interest Credit

Another tax break for homeowners that applies only to first-time homebuyers, this one is actually a tax credit rather than a tax deduction. This means that the credit lowers your actual tax bill dollar for dollar instead of your income, but be aware that you can’t take the full value of the credit if you’re also taking an interest tax deduction.

You’ll need: Form 8396

Interest and Points Deduction

This tax break is a deduction rather than a credit, which means that it reduces your taxable income rather than impacting your tax bill directly. It also means you have to itemize your deductions instead of taking the standard deduction, so it’s only worthwhile if your interest, points, and all other itemized deductions add up to more than your standard deduction would have been.

You’ll need: Schedule A (Form 1040)

Property Taxes

Property taxes on your primary residence are also deductible when you itemize your tax deductions. This includes property taxes that are paid on your behalf.

You’ll need: Schedule A (Form 1040)

Home Energy Tax Credits

If you installed solar panels or another form of renewable energy in 2016, you may be eligible for the residential energy efficient property credit. The full amount you paid, including labor and installation, can be claimed for the credit. As discussed earlier, a tax credit lowers your tax bill dollar for dollar, whereas a tax deduction only lowers your taxable income. Unfortunately, this tax credit expired at the end of 2016, so this is the last tax year you can claim it.

You’ll need: Form 5695

Home Improvements

If you use a home equity loan to fund your home improvements, the loan is treated like the primary mortgage, and interest is deductible if you itemize. The home improvements themselves are not deductible, though it’s still wise to keep all your receipts and invoices, as they can be used to reduce the amount of profit on a home sale if the IRS considers it taxable.

You’ll need: Schedule A (Form 1040) for home equity loans and IRS Publication 523 if you sold your home for a profit

Navigating the Jungle

There are plenty of tax breaks for homeowners, but figuring out whether you can take them, how you can take them, and how much you can take can be confusing. Consult a tax professional if you’re unsure of anything, as it’s always worth looking into the various tax breaks for homeowners to see if you can reduce your overall tax bill.

Take Advantage of Tax Breaks

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