For those of us who aren’t familiar with the complexities surrounding US tax laws, it can be hard to see the tax benefits of owning a home. The four points below are courtesy of the Carney & Dement Team and each of them put forth easy to understand strategies on how you can claim back hundreds (if not thousands) of dollars on your property tax.
You can’t get a tax deduction on your home improvement costs, but you can get a tax deduction on the interest you pay on those home improvements. This isn’t simply a deduction percentage—it’s a full deduction on all your home improvement interest (up to $100, 000). This opens a whole new financial strategy that you simply must take advantage of!
When buying a home, you will likely keep four main features in mind:
- The number of bedrooms
- The number of bathrooms
- The size of the living room
- The condition and size of the kitchen
But since you can claim back all your interest tax on home improvements, why not allocate some of your loan budget to expanding your home. This allows you to purchase a cheaper home and modify it to your preferences. It’s not always easy to live with renovations, but think of the savings!
Example: If your family needs a home with two bathrooms, why not purchase a home with one bathroom and build a second one onto the property? Your house will cost less, you’ll spend less money on the renovations than you would on a ready-built two-bathroom house and you will score major deductions on your loan interest.
The above is only one example, but you can use the same strategy to renovate a kitchen, build on an extra bedroom or extend your home’s living room. Just be sure to add these renovation costs as part of your loan to benefit from the deduction. If you pay cash for these renovations or take out a separate loan for them, the costs will not be deductible.
If you’ve allocated a room in your home to do business you can claim back the tax on that portion of the house. This is considered a home office deduction and includes deductions on:
- Utility costs
- A portion of your home payments
- Renovation costs
- Repair costs
- Cleaning costs
Make sure this is a valid deduction. The IRS does audit a high percentage of people who claim back on home office tax. But it’s still a tax deduction that many American homeowners don’t take advantage of, so consider it if you run any kind of business from home.
What many American home owners don’t realize is that they can claim the tax on home improvements that have anything to do with eco-friendly features. These can include:
- Solar water heaters
- Solar panels for generating power (including optional batteries)
- Energy efficient lightbulbs
- Insulation for your walls, ceiling or floor
There are other energy efficient features you can add to your home which will help you save on your utility costs, so be sure to keep your receipts. Installing these features is a worthwhile investment because you’re saving money in the long run, and you can claim back up to $500 on your taxes!
Sustainable energy features
If you’ve been thinking about installing renewable energy features to your home, don’t hesitate any longer. The government is trying to encourage renewable energy generation for the sake of the planet and to relieve their current energy shortages which require fossil fuels to generate. For this reason, you can claim back tax of up to 30% on devices that generate renewable energy. What are some of these devices?
Rainwater harvesting tanks
Installing a rainwater harvesting system is a great way to utilize free water for toilet flushing, garden irrigation and filling your pool. There are very basic collection tanks you can install, as well as complicated systems that maximize collection potential. Contact a real estate expert like the Carney & Dement Team to find out which of these wins you a healthy tax return.
Generating electricity through wind turbines means you can run your home on free power approximately 40% (or more) of the time. Once it’s installed a wind turbine will give you a return on investment for years to come. Add to that the 30% return on tax and you’ve got a good investment on your hands!
These are the kinds of savings that make a huge difference to your annual income. The Carney & Dement Team have many other real estate tax saving strategies that you may not know about. If you’re looking to purchase property in Tennessee, be sure to give them a call and find out what your options are.