4 Potential Tax Deductions for Property Owners

Another year has come and gone and it’s time to start preparing for tax season. Before we all let out a collective groan, let’s go over some of the tax benefits you may be entitled to as a property owner. Be sure to consult your accountant or tax professional for the details of these deductions and to make sure they are filed accurately.

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Here are some typical deductions you are likely entitled to:

• Mortgage Interest: The majority of a monthly mortgage payment is the interest on the loan. So it is a welcome benefit to be able to deduct some of that paid interest on your tax return. You will likely be eligible if you have a secured home loan on either a first or second home. This tax break applies to your first or second mortgage, line of credit, or a home equity loan.Your lender will send you a 1098 form that will indicate the amount of interest paid for that tax year.
• Profit on Sale of Real Estate: Due to section 1031 of the IRC, if you perform a like-kind real estate exchange within a specified time frame, you will not be taxed on the capital gains (in a nutshell—it is more complicated than this). Depending upon the current market and possible profit made, this could be a significant sum of money, and therefore a large tax advantage. Note that 1031 real estate exchange properties can’t be for personal use—they can only be investment or business properties. Talk to an advisor for guidance.
• Property Tax: Taxes on your property paid to state or local governments can be deducted as long as they are charged uniformly against all property in the jurisdiction. They also need to be based on the assessed value of the property. A portion of an imposed property tax may not qualify for a deduction; money collected by the city for improvements, for example. But if the money is for maintenance of streets and sidewalks it will be eligible.
• Home Improvement Loan: The various secured loans obtained to get the finances for home improvements are already eligible for tax deductions or credits on the interest paid; typically a home equity line of credit or loan. The difference lies in the capped dollar amount of the loan. For example, interest on loans used for home improvements can be totally deducted up to $1 million, whereas if the money is used for purposes other than home improvements, the deductible interest is limited to that of $100,000. And while points on a refinance can be factored into your deductions, cash-out refinances are not eligible. So securing a separate loan is probably the better way to go, as far as tax deductions are concerned.

These are just a few of the deductions homeowners should be on the lookout for as they fill in their tax forms. Individual states may also offer additional deductions when it comes to the cost of homeownership.

As a property owner, have you seen additional deductions on your tax returns? What would you add to this list?