What You Need to Know About the Federal Energy Tax Credit
If you’ve owned your home for a while, there’s a good chance you know how to itemize your deductions for your federal tax return. However, you may not be aware that there are additional tax-related benefits you can take advantage of just for being a homeowner. Here are a few tax tips to keep in mind when it comes to your tax credits.
If you take a loan out to do major renovations on your home, such as adding a new bathroom or updating the attic, the interest on this loan could be tax-deductible. This does not apply to loans that are for the enhancing of your home aesthetic, or for loans you take out for minor repairs. So, you’ll need to consult with your tax professional to see whether you qualify for this federal energy tax credit.
Also, if you take out a loan to accommodate a critically ill or disabled individual who lives in your home, you may be eligible for a deduction. This is likely the case as long as the renovation doesn’t increase your home’s fair value. For instance, if you had an entrance ramp installed and doors widened for a member of your household who is in a wheelchair, and the renovation costs you $5,000, but an appraiser confirmed that the value of your home only went up $1,000, $4,000 of the cost of the renovation would be tax-deductible.
Tax Credit for Residential Renewable Energy
You can install a number of renewable energy systems in your home, which would make you eligible for a federal energy tax credit. This is not the same as a tax deduction. Instead, a credit is applied to your tax bill, which reduces it dollar for dollar. This makes the tax credit very valuable. If you have a solar electric or heating system, a fuel cell, a wind-powered energy system, or a geothermal heat pump and these appliances were installed in the past year, you can get up to 30 percent of the cost of these items subtracted from your tax bill.
Lines of Credit and Home Equity Loans
Unlike previous years, home equity loans and lines of credit are gaining popularity again. If you’re married and filing a joint tax return, you can get interest deducted for a loan that is up to $100,000. If you’re single, the interest is deductible for a loan up to $50,000. To qualify for this deduction, it is not a requirement that you use the money from the loan on your home. However, the loan does have to be less than your home’s equity. For instance, if your home is worth $150,000 and your mortgage is $120,000, you’d be eligible for a deduction of up to $29,999.
Tax Deduction for a Home Office
If you have an office in your home that you use exclusively for running your business, including freelance work, you can deduct the cost of maintaining your office from the gross income of your business. This deduction is often overlooked, so talk to a tax professional to see if you qualify.
Theft Loss and Natural Disasters
Finally, if you’ve experienced home damage due to a disaster like a hurricane, or your home was broken into and items were stolen within the last year, your financial losses could be deducted from your income tax. If some of your losses were covered by your homeowner’s insurance policy, you can only deduct the losses from your income tax that weren’t taken care of by your policy.
That wraps up the Federal Energy Tax Credit and a handful of other tax deductions.