Top Tax Breaks for Homeowners in 2012

Owning a home has it’s benefits. When you are a homeowner, you have a place to call your own and that place becomes your most valued asset. When you own your own home, you can put down roots and count on the fact that your monthly payments will remain stable for many years -something renters cannot say. However, there is another particularly significant benefit associated with home ownership; and those come in the form of dollar signs subtracted from your income tax return.

1)         Mortgage interest

 Every penny you pay in mortgage interest for your full time residence is 100 percent tax deductible. The deduction is reflected on the annual tax statement sent from your lender or (in many cases) available on your lender’s website. Even for homeowners enjoying a low interest rate, this deduction is usually a whopping one.

2)         Property taxes

Like mortgage interest, every cent paid in property taxes is also 100 percent tax deductible -providing the home was your full time residence for most of that tax year. Your mortgage company provides this figure on the same form used to report your mortgage interest payments -when your property taxes are part of an escrow account. If you do not have an escrow account or if your mortgage is paid off, you can find this number by looking up your annual tax bill online (via the county tax assessor’s office) or by contacting the county tax assessor’s office if you did not receive a statement. For most homeowners, deducting mortgage interest and property taxes adds up to a large chunk of change that Uncle Sam has no claim to.

3)         Home improvements

 The IRS and many local government offices provide tax credits and incentives for home improvements that increase energy efficiency, specifically when using Energy Star products. Individual items and credits vary from one city to the next, but most include common items such as windows, doors, insulation, solar panels, solar hot water heaters or radiant roof barriers. Consult a tax professional regarding the most up to date information in your area to maximize your deduction.

4)         Closing costs on a purchase or refinance

If you purchased a new or pre-existing home in 2011, or refinanced your current one, you are eligible to deduct some closing costs. The most commonly deducted closing costs include discount points, origination fees and prepaid interest or taxes. Check IRS Publication 530 for more details on closing costs you are able to deduct, or consult your tax professional.

Your home is a powerful investment vehicle that –when managed properly—will give you many years of enjoyment and act as a haven for your after tax investment dollars.