Becoming a homeowner is an exciting time in your life.\u00a0 No more living with your parents or writing checks to a landlord for a place you\u2019ll never own.\u00a0 This place is all yours and it comes with numerous tax benefits.\u00a0 However, claiming all the credits and deductions you qualify for can be tricky.\u00a0 Here are the most common mistakes new homeowners make on their taxes.<\/p>\r\n\r\n\r\n\r\n
Your property taxes<\/a> are deductible in the year you paid them.\u00a0 The concept seems simple enough, but many people still deduct the wrong year\u2019s property taxes anyway.\u00a0 What confuses many homeowners is the fact that some taxing authorities work a year behind.\u00a0 So, you may not be billed for your 2023 property taxes until 2024.\u00a0 No matter what date is on your bills, make sure you only write down the amount of property taxes you actually paid for the year.<\/p>\r\n\r\n\r\n\r\n Note:<\/strong> The tax law limits the amount of property AND state and local taxes that can be deducted on your tax return to just $10,000.<\/p>\r\n\r\n\r\n\r\n Many lenders escrow funds to cover your property taxes but you cannot deduct the full escrow balance.\u00a0 There\u2019s a strong possibility that the amount you paid into the account was slightly different from what your actual property taxes were.\u00a0 Before the tax season begins, your lender will send you a form 1098 which will tell you the amount you\u2019re allowed to deduct on your tax return.<\/p>\r\n\r\n\r\n\r\n If you itemize, you can deduct the interest you paid on a mortgage for your primary residence or second home.\u00a0 This includes a house, condominium, co-op, mobile home, house trailer or a boat.\u00a0 Prior to the Tax Cuts and Jobs Act of 2017, homeowners were allowed to deduct the interest paid on mortgages up to $1 million ($500,000 for married filing separately).\u00a0 However, the deduction is no longer as valuable. The cap has been reduced to $750,000 ($375,000 for married filing separately) if you purchased your home after December 15, 2017.\u00a0<\/p>\r\n\r\n\r\n\r\n Millions of Americans work from home at least half of the time.\u00a0 Some people are employed by companies that allow them to telecommute, while others simply work for themselves.\u00a0 If you are self-employed and use part of your home strictly for business purposes, you can save big on your taxes by taking the home office deduction.\u00a0 The deduction applies to all types of homes and can be claimed by homeowners or renters.\u00a0 The easiest way to calculate your deduction is to use the simplified option.\u00a0 With this method you can claim $5 per square foot for up to 300 square feet of your home, or up to $1,500 per year. The home office deduction often triggers an audit so be sure to keep accurate records.<\/p>\r\n\r\n\r\n\r\n It\u2019s always a good idea to save and organize your tax documents regularly just in case you get audited.\u00a0 You need to be able to prove to the IRS<\/a> that you\u2019re entitled to the tax deductions you\u2019ve claimed.\u00a0 Another good reason to hold on to your home improvement receipts is because you\u2019ll need them to calculate your profits when you sell your home.\u00a0 Typically, you can exclude capital gains up to $250,000 if you\u2019ve lived in the home for at least two of the last five years.\u00a0 Anything above that amount is taxable.<\/p>\r\n\r\n\r\n\r\nConfusing the escrow amount for your actual taxes paid<\/strong><\/h2>\r\n\r\n\r\n\r\n
Claiming too much for the mortgage interest deduction<\/strong><\/h2>\r\n\r\n\r\n\r\n
Missing out on the home office deduction<\/strong><\/h2>\r\n\r\n\r\n\r\n
Not keeping track of home-related expenses<\/strong><\/h2>\r\n\r\n\r\n\r\n