Tax Benefits Every Homeowner Should Know About
It’s tax season again, but being a homeowner might just make it rain at refund time. Check out the tax-deductible expenses, exemptions, and credits below. Whether you own a house, condo, or mobile home, they can save you big money when you file. Just be sure to compare your total itemized deductions against the standard deduction and see which is higher (you’ll have to choose between standard OR itemized on your return). It’s also good to know what you can’t deduct before you land in hot water with the IRS…
Mortgage Interest
A house payment is comprised of two parts: principal and interest. The principal goes toward reducing the amount you owe on your loan and is not deductible. However, the interest you pay is deductible as an itemized expense on your tax return. You can generally deduct interest on the first $750,000 of your mortgage (or $375,000 each if you’re married filing separately) if you purchased your home after December 15th 2017. Those who purchased earlier (10/14/1987 – 12/15/2017) can deduct interest paid on up to a $1m mortgage.
Property Taxes
You can deduct up to $10,000 of property taxes you paid (or $5,000 if you’re married filing separately). If you have a mortgage, the amount you paid in taxes will be included on the same annual lender statement that shows your loan interest information. If you paid the property taxes yourself but don’t have receipts, you should be able to locate the total tax amount on your county assessor’s website.
Home Improvements
Making improvements on a home can help you reduce your taxes in a few possible ways:
- If using a home equity loan or other loan secured by a home to finance home improvements, these loans will qualify for the same mortgage interest deductions as the main mortgage. Only the interest associated with the first $100,000 is deductible (and if you’ve already maxed out the interest deduction on your main mortgage, you won’t be eligible for any additional deduction for this loan).
- Tracking home improvements can help when the time comes to sell. If a home sells for more than it was purchased for, that extra money is considered taxable income. However, you are allowed to add capital improvements to the cost/tax basis of your home thereby reducing the amount of taxable income from the sale. Keep in mind that most taxpayers are exempted from paying taxes on the first $250,000 (for single filers) and $500,000 (for joint filers) of gains.
- Home improvements made to accommodate a person with a disability (yourself, your spouse, or your dependents who live with you) may be deductible as medical expenses. Examples include adding ramps, widening doorways/hallways, installing handrails or grab bars, lowering kitchen cabinets, or other modifications to provide wheelchair access.
- If you live in Washington State and apply with your county prior to construction, you may be able to get a 3-year property tax exemption for major home improvements (including an ADU or DADU) that add up to 30% of the original home’s value.
Home Office Deduction
If you run a business out of your home, you can take a deduction for the room or space used exclusively for work as your principal place of business. This includes working from a garage, as well as a typical office space. Unlike most of the other deductible expenses, you can deduct home office expenses even if you opt to take the standard deduction.
This deduction can include expenses like mortgage interest, insurance, utilities, and repairs, and is calculated based on “the percentage of your home devoted to business use,” according to the IRS.
Home Energy Tax Credits
For homeowners looking to make their primary home a little greener, either the Energy Efficient Home Improvement Credit or the Residential Energy Clean Property Credit can help offset the cost of energy efficiency improvements. Even better, these are credits, which means they directly lower your tax bill.
- Energy Efficient Home Improvement Credit: 30% of the cost for qualified high-efficiency doors, window, insulation, air conditioners, water heaters, furnaces, heat pumps, etc. Maximum credit of $1,200 (heat pumps, biomass stoves and boilers have separate max of $2,000).
- Residential Clean Energy Credit: 30% of the cost for adding qualified solar/wind/geothermal power generation, solar water heaters, fuel cells, and battery storage.
What You Can’t Deduct:
- Mortgage Insurance (this is a change as of 2022)
- Title Insurance
- Closing Costs
- Loan Origination Points
- Down Payment
- Lost Earnest Money
- Homeowner’s Dues*
- Homeowner’s/Fire Insurance*
- Utilities*
- Depreciation*
- Domestic staff or services*
*Unless it’s related to your home-office deduction—contact your tax pro to see if it’s a qualified deduction for you.
Do you have a low-income, disabled or senior homeowner in your life? Check out this article on King County property tax relief.
Psst…every homeowner’s financial situation is different, so please consult with a tax professional regarding your individual tax liability.
We earn the trust and loyalty of our brokers and clients by doing real estate exceptionally well. The leader in our market, we deliver client-focused service in an authentic, collaborative, and transparent manner and with the unmatched knowledge and expertise that comes from decades of experience.
© Copyright 2024, Windermere Real Estate/Mercer Island.
Adapted from an article that originally appeared on the Windermere Blog, written by: Chad Basinger.
2021 Home Trends
Ready for a fresh start in 2021? With home still the place to be, refreshing your indoor and outdoor living spaces can make a big difference in your everyday life. The stresses and challenges of 2020 have influenced the trends of 2021 with a turn toward comfort, nostalgia and independent spaces to work and play…
Sick of working at your dining room table? Desperate for a peaceful spot to exercise? You’re not alone! That’s why home offices and other clearly delineated, private spaces have become more important than ever. Even if you’re short on space, creative solutions such as turning your closet into a “cloffice” or installing folding room dividers can help you carve out space to study, Zoom or keep fit in peace.
While the houseplant trend predates the pandemic, quarantine has intensified its popularity as people yearn to bring the outdoors in. You can try out your green thumb—and improve your air quality—by using real plants as decor (try Bloomscape’s predicted winner, Ficus altissima). Just make sure you pick the right specimens for your level of natural light. Some folks are even installing special lighting for their own indoor herb or veggie gardens.
Looking for something low-maintenance? Convincing faux versions are widely available, offer more flexibility and still add a fresh look.
Dovetailing off the houseplant trend, natural materials are one of the years biggest trends—from wood-grain kitchen cabinets and countertops to rattan furniture and lighting fixtures. Natural wood-grain shelving and paneling are also increasing in prominence.
In the wake of 2020’s frightening new unknowns, people are seeking comfort with familiar throw-backs from simpler times. The funky mauve, emerald green and burnt orange of decades past are making a comeback along with paneled walls, ’80s curvy furniture and ’90s traditionalism. Retro art and accent pieces continue to be popular.
As winter contributes to our year-long cabin fever, more households are dreaming of bigger and better outdoor spaces. Park-like playgrounds, zip lines and DIY climbing walls are making an appearance in backyards. Safer al fresco entertaining spaces are also in demand with outdoor kitchens, dining areas and fire pits all on the rise.
Need an easy refresh? Try adding throw pillows, blankets or artwork in hues from Pantone’s Spring/Summer 2021 color palette.
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COVID-19 Resources
Make Working From Home Work for You…
- 5 Small Things You Can Do to Improve Your Home Office
- WRE’s “Work from Home” Spotify playlist
- Working remote tips from Time Magazine
- Staying productive during the coronavirus while managing stress/anxiety/fear
- Making the perfect office to work from home
Kids at Home?
- Information about how to talk to littler kids about the coronavirus.
- Some essential steps to take to protect children from getting sick (mostly common sense stuff)
- 50 boredom busters
- Some great virtual tour links to visit various Louvre exhibits + the Tokyo National Museum, the Guggenheim Museum, and the Smithsonian Museum of Natural History.
- Activities, educational videos, and games from the San Diego Zoo
- Take a virtual visit to a national park, including the Clara Burton in Maryland, the Hot Spring National Park, the island of St. John in the Virgin Islands, and more!
- Explore Mars and meet the Curiosity Rover in an interactive experiences, videos and animations, raw images, and more!
- Check out the Cherry Blossoms at the University of Washington virtually!
- Take a cooking class with your kids from Better Homes and Gardens or through BBC! MilkStreet is also offering free cooking classes through the end of April.
- Enjoy a trial to the BroadwayHD.com site and watch Broadway online!
- Learn guitar from Fender during your time inside!
- The Seahawks Weekly Challenge kicked off this week by Coach Pete Carrol!
Bring Your Favorite Restaurants Home
- The Seattle Time’s guide to Seattle & Eastside restaurants offering takeout and/or delivery
- Eater’s neighborhood-by-neighborhood breakdown of restaurants for Seattle
- Takeout and delivery deals compiled by Seattle Metropolitan Magazine
- In-city deals compiled by The Stranger
Feeling Vulnerable?
Here Are Stores Offering Special Hours for Seniors and the Immunocompromised…
- Albertsons: Tuesdays and Thursdays from 7-9 a.m.
- Costco: Tuesdays and Thursdays from 8-9 a.m. (must have a membership)
- Fred Meyer: Monday through Thursday from 7-8 a.m.
- Metropolitan Market: Daily from 7-8 a.m.
- PCC: Daily from 7-8 a.m.
- QFC: Monday through Thursday from 7-9 a.m.
- Red Apple: Tuesday and Thursday from 7-9 a.m.
- Rite Aid: Mondays from 8-10 a.m.
- Safeway: Tuesdays and Thursdays from 7-9 a.m.
- Target: The first hour of Tuesdays and Wednesdays. Check Target’s website for specific opening hours at locations throughout the Greater Seattle area.
- Thiftway: Tuesdays and Thursdays from 7-9 a.m.
- Town & Country Markets: Monday and Wednesday, 7-9 a.m.
- Trader Joe’s: Daily from 9-10 a.m.
- Uwajimaya: Daily, 8-9 a.m. in Seattle; all other locations on Tuesdays from 8-9 a.m.
- Walgreens: Tuesdays from 8-9 a.m.
- Walmart: Tuesdays from 6-7 a.m.
- Whole Foods: Daily, one hour before the store opens to the public. Check Whole Foods’ website for specific opening hours at locations throughout the Greater Seattle area.
More Resources…
- General COVID-19 info for Washington State
- Government Support for Washington State
- Mortgage Relief Fact Sheet
Find a Home | Sell Your Home | Property Research
Neighborhoods | Market Reports | Our Team
We earn the trust and loyalty of our brokers and clients by doing real estate exceptionally well. The leader in our market, we deliver client-focused service in an authentic, collaborative and transparent manner and with the unmatched knowledge and expertise that comes from decades of experience.
2737 77th Ave SE, Mercer Island, WA 98040 | (206) 232-0446
© Copyright 2020, Windermere Real Estate / Mercer Island