Tax credits are available for installation of renewable energy sources, such as solar panels.
Home ownership has its benefits and can drastically reduce your yearly tax liability. You may qualify for home tax credits that lower the overall balance of your federal income tax bill each year by making qualifying improvements to your property. You can also save money on your taxes by taking advantage of common homeowner tax deductions as well.
Energy-Efficient Homes
The government provides sizable tax credits to home owners who make certain energy-efficient improvements to their homes. In February 2009, congress passed a stimulus package that provided tax credits for homeowner investments in renewable energy systems. For example, if you install solar panels or wind generators in your home, the IRS will provide you with a tax credit of up to $2,000. The renewable energy credit was scheduled to expire Dec. 31, 2016.
Home Improvements
If you make home improvements to your property for the purpose of increasing its resale value, you may be able to lower your tax liability when you sell your home. Keep receipts and records of all of your expenses incurred for eligible upgrades, such as installing a new roof or building on an extension to your property. IRS Publication 530 lists examples of qualifying home improvements, such as paving your driveway, rewiring your home or installing central air conditioning. Be aware, however, that regular home maintenance expenses do not qualify.
Deductions
In addition to tax credits, homeowners can take advantage of tax savings with valuable itemized deductions. Deductions lower the amount of your taxable income. Your household receives a standard deduction each year, but as a homeowner, your itemized deductions could exceed the standard deduction. For example, you can deduct the interest you pay on your mortgage each year, including any late fees you incur on your loan. Additionally, the IRS allows you to deduct your private mortgage insurance (PMI) premiums and your school and property taxes. Your mortgage company will send you a Form 1098 each year with each of these items reported on it for your records.
Considerations
Between 2008 and 2010, the federal government offered tax credits of up to $8,000 to first-time home buyers. The credit is refundable on 2010 federal income taxes for homeowners who closed up until the Sept. 30, 2010 deadline, when the credit expired. A similar credit of up to $6,500 was also available for long-term homeowners who lived in a home at least five of the previous eight years. As an exception to the rule, the government will allow military personnel to take advantage of an extension of the home buyer credit through April 2011, which will be refundable on 2011 federal income tax returns filed in 2012.
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