Taxes are a complicated mess that Americans must navigate every year in April and there are often surprises waiting for you, courtesy of the IRS. There are countless deductions, additions, and corrections that can and must be made in order to complete your tax return every year and tap into a great refund. Homeowner costs are no different, and taxpayers must contend with these as well. However, the costs of owning and maintaining a home can actually prove a great benefit each year as you strategize about how to maximize your deduction power and receive the best possible tax return check.
Taxes Associated With Homeownership
Homeowners must pay tax on their property every year, but the deductions available to a property owner are numerous and vast in their scope. The greatest benefit of owning your own home is the concept of imputed rent. Essentially, as a homeowner, you live ‘rent-free’ in the home. You may still owe money on your mortgage, but this payment is in relation to the ownership stake in the home and not strictly classified as a rent–like payment. As a homeowner you act as both the landlord and renter and can take advantage of the tax benefit that this provides. Americans reduced their tax burden as write-offs in relation to imputed rent to the tune of more than $121 billion in the 2019 tax year.
Similarly, your mortgage payment, unlike a rent payment, is tax-deductible up to a certain limit ($1,000,000 in most cases). This means that homeowners can reduce their tax burden through the borrowing power granted implicitly by their ownership of the asset that is a house. However, as a disclaimer, it’s always a good idea to consult tax preparers and online tax services, like TurboTax or H&R Block, when seeking to make new or expanded deductions to your overall tax bill as a result of the complicated nature of tax filing.
Borrowing For Renovations and Reduced Taxpayer Obligations
Borrowing from a private lender through the equity of your home can grant you access to a unique avenue of double jeopardy savings that can really boost your overall financial health. Utilizing a service like Pacific Private Money can help you gain access to the funding you need for emergency roof work or repair to the gutters and flooring in your home while also helping you to write off the debt on your tax return.
Lenders are a great source of capital when hiring a license-holding contractor to conduct emergency repairs, or for long-planned home renovations in order to protect your cash flow and emergency savings pot. Instead of tapping into your free capital, borrowing from a private money lender can give you access to a great rate and favorable repayment structure while also helping you to offset that big bonus from a job well done. Borrowing for home improvements in a particularly lucrative year can give you access to tax-deductible funding that can bring your tax burden back down a bracket. This can significantly reduce your bill while maintaining your ability to fully utilize that influx of capital received as a result of a promotion, bonus, or pay raise. By taking advantage of someone else’s money you gain access to a favorable interest rate that stands typically creates a much lower debt burden than the increase in tax responsibility would without the offset.
Many homeowners choose to borrow when major renovations must be carried out, such as putting on a new roof. If you have roof work you need to be done, you’ll want to seek out a professional firm like Buccos Roofing with years of experience to make sure you’re getting the right worth for your loan. A contractor like Buccos will give you the peace of mind you deserve as a homeowner looking for safety and security from rodents and rain throughout the year.
Working to line up borrowing and major renovations with a repair job can help you schedule major upgrades to the kitchen or bathrooms at the same time so that you can unlock more tax-deductible capital that gives you a home that feels brand new at the same time. Discuss these options with a contractor to assess the pros and cons of multiple renovations in a single tax year.
Borrowing for home improvement projects is where the smart money lies, especially when it comes to tax refunds and deductibles for homeowners.