During tax season, people are always looking for tax breaks but there are three tax breaks that people often do not know about or consider pertaining to real estate. If you have recently purchased real estate or made renovations of some sort, you should take a look at the three most commonly overlooked real estate tax breaks.
1. Tax breaks for home improvements that are green.
These tax breaks can be found at both the state and local levels. It may seem like green renovations are pricey, but you can get a tax break that is as high as 15 percent of your annual income. That can be very helpful and pay for a portion of the renovation. In addition to that, you will save money over time by increasing your home’s efficiency. Saving money on the utility bills alone is enough to make you consider the upgrades. Before you do the work though, make sure that the improvements you are planning are eligible for the state and local tax credits and/or breaks. Some of the improvements covered are insulation, solar panels, and dual paned windows. The list is growing every year, too!
2. Tax breaks on the interest you pay for your mortgage.
If you financed your home, then you can get a tax deduction on the interest paid during a calendar year. This is a good reason to purchase instead of rent. While the interest makes the home more expensive in the long run, if you can get the money back at the end of the year, it will equal the amount you originally agreed to pay. You can get a tax break for up to $1 million over the life of your loan. This makes home ownership more appealing. To get this tax break, you first have to itemize all deductions. This can take a little bit of work but since it will save you a lot of money over time, it is worth it. Work with a financial officer to make sure you are doing everything right for the tax break and say hello to all the interest you paid all year.
3. Tax exemptions on your cancellation of debt.
This tax break is for individuals who have defaulted on a debt that was then forgiven through a short sale or foreclosure. This is called a cancellation of debt or a COD. In 2007, the Mortgage Debt Forgiveness Relief Act was passed that temporarily exempted the COD which means that it cannot incur income tax liability. It was going to expire in December of 2013 but was then extended. Take advantage of this tax break while you can. It will not be active for very long but if you lost your home and were able to cancel the debt through a foreclosure or short sale, you should take advantage of the tax break. Even if you did not take advantage of it before, you may be able to apply it later by talking to a financial officer about your options.
