Speak with your tax preparer to find out which of these changes are best for you.
Given the state of the housing market, you might think the saying “There’s value in real estate” doesn’t mean as much as it used to. But there could be money in your house—in the form of potential tax savings.
There are various ways to use your home to qualify for tax credits or deductions. For starters, mortgage interest is deductible, says Robert Walsh, CPA, a Certified Financial Planner™ based in Red Bank, N.J.
Then, a smart way to save on your federal taxes is to make energy-efficient home improvements. A number of ENERGY STAR-qualified and related improvements are eligible for a credit on your 2011 taxes. These include the installation of windows and doors, water heaters, heating and cooling systems, stoves, roofs, insulation and solar energy systems. You can read the specifics and the fine print on the ENERGY STAR website, along with information about amending your 2010 taxes to capture credits that applied last year.
If you’re going to make improvements to your home, it’s a good idea to talk to your accountant or tax professional first. “More money is saved in tax planning than in tax preparation,” says Walsh. “If you’re going to do anything major, you’d be wise to spend a little money and get a tax projection done.”
Walsh also recommends keeping a spreadsheet of home improvement projects you complete. Those improvements could change the value of your home, which could have a positive impact on your taxes if you sell or rent your house. Be sure to hang on to all your receipts.
One last tip from Walsh: Given how low interest rates are right now, it could be a great time to refinance your home or open a home equity line of credit.
“Up to $100,000 of a home equity line is tax deductible, and credit card payments, for example, aren’t,” says Walsh. “You don’t want to carry credit card debt, this might be a good time to take advantage of low interest rates and use a home equity line to pay off credit cards.”
Could You Save on Your Home? Nationwide Bank may be able to help you reduce your mortgage payments. Find out whether mortgage refinancing is right for you.