Looking to make tax time a little brighter? Consider itemizing your taxes, which will allow you to claim interest you paid on your first and second mortgages. This deduction, worth up to $1.1 million in savings, includes mortgage loans (up to $1 million) and home-equity loans (up to $100,000). Even better, you don’t have to use the loans to improve the home’s condition.
These deductions can be substantial for homeowners with high mortgages. In neighborhoods with high home values, homeowners can use the tax benefit to their advantage if they have a mortgage greater than $625,000 ($417,000 in standard markets). What this means is that a couple in the 33% tax bracket, with an income less than $309,900, can reap a tax benefit of up to $9,900 on $30,000 of mortgage interest paid.
You can also deduct the interest on your second home mortgage. Second homes must have sufficient plumbing, such as showers and toilets. As long as they meet the qualifying plumbing restrictions, mobile homes, boats, and other buildings can be claimed as a second home. However, a lot that is secured for the building of a second home doesn’t qualify, typically because they are empty. If you rent your second home to a tenant, you can still deduct maintenance, insurance, and property fees. It’s recommended that you maintain a separate bank account for all of your rental income.
Along with mortgage interest, there are a few additional home-related expenses that can help give you a greater deductions come tax season, but you need to have the right documentation. Taxpayers who work from home can deduct certain expenses, provided their workspace qualifies as a home office.
If a business owner choses to rent their home with the intent of holding a training session or meeting, they may not be required to report that income. The IRS only requires you to report rental income that is acquired for use of a building for more than two weeks of the tax year. This means that business owners have the opportunity to deduct rental fees as an expense.
Taxpayers with an income greater than $258,250 ($309,900 for married couples) will not have the option of claiming Schedule A itemized deductions in 2015, due to the IRS phasing out the choice for individuals with a high AGI. Itemized deductions usually include mortgage interest, state taxes, medical bills, donations, and other expenses.
It’s important to remember that the tax status you use can have a big impact on your deductions. A couple who is unmarried and each own a home is eligible for up to $1.1 million each, provided they file separately. If they are married, and file separately, the amount they are eligible for drops to $500,000 of mortgage interest.