“I’m grateful Uncle Sam is cutting me some slack. But since I had to negotiate for my house, can I negotiate some more tax breaks?”
We’ll give you four you should know about.
Residential Energy Efficiency Property Tax Credit:
The IRS sure loves green… and being green too. Uncle Sam has a tax credit you should know about when it comes to making your space more environmentally friendly. You can take a tax credit of up to 30% of your total costs to install renewable energy equipment (like solar water heating systems or geothermal heat pumps) for home use. Go Planet.
The one catch to note: this credit is a non-refundable credit, meaning that the credit allows taxpayers to lower their tax liability to zero, but not below zero. No refund involved. The credit expires in December 2016, so like the PMI deduction, word’s still out on whether this credit will be renewed.
Home Office Deductions:
The home office deduction applies to both homeowners and renters. If you have a dedicated space in your home that you use as your primary place of business, you can deduct that space on your taxes. But if you want that paper, don’t think Uncle Sam is gonna make it easy for you. You’ve got figure out the size of your office space, and deduct that as a percentage from your mortgage or rent and utilities. Pass the calculator.
Penalty-free IRA Withdrawals to First-Time Homebuyers:
Here’s one exception to that 59 ½ rule. You can take up to $10,000 from your IRA only if the cash goes towards the purchase of your first home. You’ll still pay taxes on that $10k, but you’ll nix the 10% early withdrawal penalty. If you’re taking the cash from your Roth IRA, you’ll skip that 10% penalty, but you must have had your Roth for at least five years to avoid paying taxes on your withdrawal.
Fun fact: You don’t actually need to be a first time homebuyer to tap into these tax-advantaged savings. The IRS defines a “first-time homebuyer” as someone who hasn’t owned a home in two years. So if you’ve owned in the past, but you’ve rented for the last two years, you can still avoid the IRA tax penalty. That $10k, however, is for the lifetime of your account, so if you’re tapping into your savings for another “first-time” home purchase, you’ll have to use a different account.
House Sale Tax Advantage for Married Couples:
If you’re ready to sell your home- and as stipulated by the IRS, you’ve lived in it for at least two of the five years prior to the sale- the IRS doesn’t tap into any profits you make on your home under $250,000 if you’re single; if you’re married, that amount jumps to a cool $500,000. If your home profits top those amounts (and if so, you’re a lucky duck), you report it on your taxes and get dinged for it, as usual.
But beware if you’re trying to sell your home and you haven’t owned it for at least two years: the IRS assumes you’re trying to flip your home for a profit, and you’ll get nailed accordingly.