What You Should Know About Owning a Home and Taxes
September 16, 2021 | Kirk Callender
Owning your own home is a rewarding journey. Knowing more about how homeownership and taxes work can help you make informed decisions throughout the process of purchasing, owning, and selling a home. Understanding taxes on your property can also help you save money on your home.
Most states in the United States have property tax laws, which is a tax levied on property owned by an individual(s) or a legal entity. New Hampshire, for example, has a property tax rate of around 2.05%. Property values are typically assessed annually by local assessors, who are called listers in Vermont. Property taxes are based on the value of both the land and physical property. Assessors can use different methods of calculation to assess your property value including comparing it to other comparable properties in your area or based on the amount of income you could make renting your property. The good news is that you can deduct up to $10,000 of state and local property taxes per year.
Tax Breaks for Improvements
While most home improvement projects will not earn you a break on your taxes, there are two notable exceptions to this rule. The first is for installing energy-efficient equipment such as small wind turbines, solar panels, and geothermal heat pumps. You can get a tax credit worth 26% of the cost of your solar system. The other exception is for alterations made for medical reasons. For example, the construction of a ramp to your front door to assist someone living in your house who is disabled, or other interior modifications may be eligible for a medical deduction. The only caveat to this is that the improvement cannot increase the property value.
Mortgage Interest Deduction
You can save on your taxes by claiming interest paid on your mortgage. The way to do this is to itemize deductions on your taxes, which requires you to keep good records of the interest paid. This tax deduction applies to the interest paid on the first $1 million of mortgage debt. This applies to both primary and secondary residences and applies to all different types of dwellings including houses, condos, apartments, mobile homes.
Owning a home and paying taxes requires good record-keeping and staying on top of local and state tax rules and incentives in your state. Leveraging your knowledge of possible deductions and reductions can help you save on your taxes while building equity on your home.
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