In recent years, low-interest rates meant many homeowners chose the standard deduction over itemizing because their mortgage interest just wasn’t high enough. But with interest rates more than doubling in the past two years, those who’ve recently bought homes might find that itemizing their deductions could save them more on taxes. This shift is something both new homeowners and those who’ve been in their homes for a while should look into.
Also, it’s a smart move for all homeowners to check out the home improvements they made in 2023. Some of these upgrades could qualify for tax credits, which can help lower your tax bill. We’ll talk about these opportunities, using information from IRS Form 5695 and Publication 530. If you’re not quite up to speed with these documents, it’s a good idea to give them a read to get the full picture of what tax breaks you might qualify for.
Home Improvements and Energy Efficiency Upgrades
Before diving into the specific improvements that can qualify for tax credits, it’s important to note that the dollar amounts and qualifications for these credits can be found in IRS Form 5695. This form provides detailed information on the types of improvements that are eligible and the specific credit amounts you can claim.
- Insulation Materials and Systems: Adding insulation that’s designed to reduce heat loss or gain can be a smart investment, both for energy savings and tax deductions.
- Exterior Windows, Skylights, and Doors: Upgrading to energy-efficient windows, skylights, and exterior doors can improve your home’s insulation and qualify for tax credits.
- Energy-Efficient Roofing: Installing certain metal or asphalt roofs that reduce heat gain can be tax-deductible.
- High-Efficiency Heating and Cooling Systems: Investments in electric heat pump water heaters, electric heat pumps, central air conditioners, and certain water heaters can yield significant tax credits.
- Advanced Heating Systems: Qualifying natural gas, propane, or oil furnaces, and hot water boilers, especially those with high fuel utilization rates, are eligible for deductions.
- Air Circulating Fans: Installing advanced main air circulating fans in your furnace system can also contribute to energy efficiency and tax savings.
Tax Deductions Beyond Improvements
In this section, we’ll cover a range of homeowner expenses beyond home improvements that can potentially lower your tax bill. From the interest paid on your mortgage to the points you might have paid at closing, there are several areas where savvy homeowners can find tax relief. We’ll outline these key deductions, including mortgage interest, real estate taxes, and points, helping you identify opportunities to maximize your tax benefits as outlined in IRS Publication 530.
- Mortgage Interest Deduction: Homeowners can deduct mortgage interest on their primary and secondary homes, subject to certain conditions and limits
- Real Estate Taxes: State and local real estate taxes paid by the homeowner can be deductible, with a cap on the total state and local tax deduction.
- Points Deduction: Points paid to obtain a mortgage, either on a home purchase or a refinance, may be deductible.
- Exclusions and Special Situations: Special situations like the exclusion from income of discharges of qualified principal residence indebtedness and repayment rules for the first-time homebuyer credit.
This overview provides a foundation, but for advice that fits your circumstances, a professional accountant is invaluable. If you’re looking for expert guidance in navigating these tax deductions, please feel free to reach out. I can connect you with a reliable tax advisor who can provide the detailed insights you need.