With tax season officially open, you may be wondering how you can reduce your tax liability. No one likes paying taxes. Generally speaking, the less of your hard-earned money you have to give away, the better you’ll feel. Did you know that your home could potentially help you reduce your tax liability?
Working From Home
Thanks to the pandemic, more people are working from home than ever before. On top of that, many people found themselves being let go from their jobs and turned to freelance or contractor work to try to make ends meet. This has led many to set up their own home offices. Did you know that you could potentially use that as a tax deduction to reduce your tax liability? Of course, there are some rules you have to follow to make a home office tax deductible. Make sure you keep careful records of your purchases so you can account for it accurately.
With a greater emphasis being placed on clean, renewable energy, it makes sense that the federal government might offer tax incentives to homeowners who take steps to improve the energy efficiency of their home. If you add qualified properties to your home, you could be eligible to receive tax credits that can reduce your tax liability. For example, solar systems purchased before January 1, 2021 can earn you a tax credit up to 26% of the value of the system. Solar isn’t the only type of home improvement that could earn you a tax credit. Look into the projects that can net you tax credits at the state and federal levels so you understand what your options are.
Mortgage Interest and Property Taxes
Most people aren’t going to be able to buy a home without taking out a mortgage, and everyone is subject to paying property taxes. This can seem like a real drag, but the good news is that these payments can help you lower your tax liability. If you choose to itemize your deductions on Schedule A of a 1040, you may be able to deduct your property taxes and the interest you’ve paid on your mortgage. Make sure you carefully read and understand the rules governing this, as not all circumstances allow you to do so.
As it turns out, your home can help you reduce your tax liability. If you have a home office, qualified properties, or pay interest on a mortgage or property taxes, you may be able to use those expenses to reduce your taxable income or take advantage of tax credits. As with any tax situation, if you aren’t sure how to go about handling it yourself, consult with a tax professional who can answer your questions and guide you through the process.
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