When you are making the decision to buy a home, you should also consider the tax deductions and benefits that come with it. The good thing is that the IRS offers some rather tempting tax deductions for the homeowners. Though some of the deductions available to the homeowners have been limited under the new tax laws, there are still substantial benefits to consider. Here are the important facts a homeowner should know about taxes.
Understanding local and state tax deductions
Certain local or state taxes are dependent on the property value, and these are deductible as per the federal tax returns. As per the tax reforms, filers are limited in terms of deducting up to ten thousand dollars in local and state taxes, and five thousand dollars if married and filing separately. Things like Energy efficient tax credits 2020 will also have to be considered by a homeowner.
This new limit, along with the higher deduction standards, make the deduction comparatively less beneficial to many of the filers. However, in case you are itemizing for this year as a homeowner, it is worth your time to do the math.
A strategy used by many taxpayers is to convert parts of the house to business usage. For instance, if you are self-employed, you can claim home office deductions. Now, the property taxes that are allocated to that part of the home might be deductible as a part of business expenses on Schedule C. You should talk to tax professionals in case you have to get involved in complex tax planning.
Penalty-free IRA withdrawal for homeowners
Though this is not a credit or deduction, you should remember that the first-time homebuyers might withdraw an amount of ten thousand dollars using an IRA. This amount has to be for the down payment on the home without paying a penalty of ten percent. This amount will get taxed until you start withdrawing from the Roth IRA that has been taxed already. There are certain limitations applicable to tax-free Roth IRA withdrawals, such as the need to own the account for a minimum of five years.
Do not neglect considering the trade-off of reducing the retirement savings for purchasing a home. It can delay the retirement timeline and reduce your future savings. It is an important factor to consider in Homeowner tax deductions 2020.
So, keep the factors mentioned above in your mind when you try to consider homeowner deductions. It will help you make the right decision as per your status as a homeowner in the country.
Can’t donate? Please share. Even a quick share on Facebook can help.
The average share raises $97.