Tax time is both the plight and the pleasure of the American public. No one enjoys poring over their financial records from the previous year; however, the rewards can be enormous. Based on statistics from the IRS, roughly four in five taxpayers will receive refunds from the federal government.
There are two keys to getting the biggest refund possible: planning ahead of time and ensuring you don't miss any discounts when preparing your taxes. For calendar year 2015, your opportunity to plan ahead has long since passed. This means your best bet to lower your taxable income and increase your refund is to take advantage of every possible credit and deduction that you deserve.
According to the National Multifamily Housing Council, there are nearly 74 million owner-occupied homes comprising nearly 201 million residents in the U.S. Homes are often a treasure trove of tax deductions and credits for taxpayers. If you're a homeowner, here are nine deductions and credits you don't want to miss with this year's tax filing.
1. Mortgage interest deduction
Arguably the most lucrative tax deduction for homeowners is the mortgage interest deduction, which allows you to deduct a percentage of the interest paid on your primary home as well as a secondary home, should you own one. As a whole, taxpayers can deduct the interest paid on a first and second mortgage up to $1 million in mortgage debt, or $500,000 if married and filing separately. Any amount over that isn't tax-deductible.
2. Non-Business Energy Property Credit
This tax credit allows you to claim up to a maximum of $500 in lifetime credits for energy improvements around your home. What type of improvements qualify, you ask? Energy-efficient exterior windows and doors, certain roofs, and insulation would fit the bill as long as you have the manufacturer's credit certification statement. Homeowners can claim up to 10% of the costs for the improvements, including labor and installation, but there are limitations on how much of the $500 you can claim for individual improvements -- for example, window improvements max out at $200 of the $500 in credits.
3. Residential Energy Efficient Credit
In addition to the Energy Property Credit, the Residential Energy Efficient Credit is in place through 2016 and allows homeowners to write off 30% of the costs for alternative energy equipment and installation. The best part about this credit is that there's no upper limit on how much can be deducted. Taxpayers can also carry the credit forward to future years until it's completely used up. Examples would include the installation of solar panels, a solar water heater, or small wind turbines.
4. Mortgage and refinancing points
As a homeowner you may not have been thrilled about paying points (each "point" equals 1% of the principal loan amount) when you originated your initial mortgage or refinanced to a lower interest rate. But the good news is that your points can be deducted over the life of your loan.
Mortgages are usually originated in such a way that the points are rolled into the entire cost of the loan, meaning they can be amortized annually over the life of the loan. An example: Let's say a homeowner paid $1,500 in points on a 15-year loan. This would allow the homeowner to deduct a maximum of $100 per year over the life of the loan. Plus, if you pay your loan off early, you'll be able to deduct the remainder of your points on your next tax filing.
5. Interest on home equity line of credit or home improvement loan
Want to spruce up the look of your home? Taking out a home improvement loan or home equity line of credit to remodel your home could result in some welcome deductions come tax time. Interest paid by the homeowner on a HELOC or home improvement loan is tax-deductible, although it should be noted that the deduction is limited to the lesser of $100,000 or the total market value of your home minus outstanding debt.
6. Private mortgage insurance
Private mortgage insurance, or PMI, is an extra amount homeowners will usually pay when purchasing a home with less than a 20% down payment. PMI is there to protect your lender in case you fail to make your payments and the loan defaults. Homeowners can petition their lender to cancel their PMI payment when their equity stake in a home hits 20%, but lenders must cancel PMI when a homeowners' equity stake hits 22% of original home value.
PMI is also tax-deductible, but it largely depends on your adjusted gross income. If an individual earns more than $109,000 in AGI, then their PMI isn't tax-deductible. PMI deductions also begin to phase out once an individual's AGI crosses $100,000. PMI deductions are even tighter for homeowners who are married and filing separately, with the deduction beginning to phase out at $50,000 in AGI and disappearing completely at $54,500 in AGI.
7. Property taxes
Here's a universal tax deduction available to homeowners: property taxes. The amount of property taxes paid varies from state to state and is based on the value of your home. Residents in New Jersey are particularly glad to see this deduction, since they pay the highest property tax as a percentage of their home value in the country.
8. Natural disaster
If you're a homeowner who has experienced a loss due to a natural disaster, such as flooding or a tornado, and your city or county has been declared a federal disaster area during 2015, you may be eligible to claim a loss when preparing your taxes. The important thing to keep in mind is that if your insurer reimburses you for losses, the most you can claim on your taxes is the difference between the current value of the item(s) you claimed as a loss and what you were reimbursed by your insurer (if there's even a difference).
9. Home office deduction
Last but not least, if you work from home you may be able to deduct expenses related to your business. Homeowners can take advantage of this tax break by either taking a flat-rate deduction based on the square footage of their work space or by itemizing their business expenses for maintaining the home office. However, one word of caution: The IRS tends to look very closely at home office deductions, so ensure that you have receipts to back up your claims, and that every inch of your "work space" is used for work purposes. Consider the home office deduction one component of your taxes that could increase your risk of an audit.