The U.S. tax code can be a complex maze, and homeowners are no exception. Knowing what deductions and credits you qualify for can save you significant money come tax time. But with so much misinformation floating around, it’s easy to fall victim to bad tax advice.
This article debunks some of the most common homeowner tax myths and highlights some valuable benefits you might be missing.
Myth Busters: Separating Fact from Fiction
- “My divorce agreement says I can claim the child as a dependent, so it must be true.”
Wrong! The IRS has its own rules (IRC Sections 151 and 152) that determine who gets to claim a child as a dependent, not your state court. - “Child support payments automatically grant me the dependent deduction.”
Not necessarily! The custodial parent, the one the child lives with most nights of the year, typically claims the deduction. However, there are exceptions. - “Gifting my employee their pay avoids payroll taxes.”
Absolutely not! The IRS considers employee compensation taxable income, regardless of how you label it. - “Medical expenses are only for me, my spouse, and dependents.”
There’s some flexibility here. You can deduct medical expenses for a qualifying relative who isn’t necessarily your dependent. - “Donating a timeshare week to charity gives me a tax break!”
Unfortunately, no. The IRS views donated “use” of an item differently than donating the item itself. - “Paying my nanny in cash avoids Social Security and Medicare taxes.”
Think again! Once a certain threshold is met, household employees are subject to FICA taxes. - “Health Savings Accounts (HSAs) are only for medical expenses.”
While HSAs are designed for high-deductible health plans and medical costs, you can also use them for non-medical expenses after age 65, though taxes and penalties may apply. - “There’s no point filing taxes unless I make over $600.”
This is a misconception. The $600 threshold applies to businesses reporting independent contractor payments, not your personal income tax filing requirement. - “No 1099-INT form means no interest income to report.”
Financial institutions aren’t required to send a 1099-INT for interest under $10, but you still need to report all interest income of $0.50 or more. - “Interest-free loans to family have no tax consequences.”
The IRS considers the forgone interest on loans exceeding $10,000 as a taxable gift. - “Transferring home ownership to my child saves taxes.”
Not always! This could actually create a larger tax burden for your child when they eventually sell the house. Inheriting the home typically offers better tax advantages. - “Medical conferences for a dependent’s illness are fully deductible.”
Partially true. Travel and registration fees are deductible, but meals and lodging usually aren’t unless the care happened at a specific medical facility. - “Lead paint removal qualifies as a full medical deduction for repainting my house.”
Only the removal of lead paint from reachable or damaged surfaces qualifies as a medical expense. Repainting itself isn’t deductible. - “Selling my used electric vehicle gets me a tax credit!”
The tax credit for electric vehicles goes to the buyer, not the seller. Additionally, it only applies to purchases from dealerships, not private individuals. - “Investing overseas means I avoid U.S. taxes.”
Nope! U.S. citizens and residents are taxed on worldwide income. - “Only homeowners can claim credits for solar energy systems.”
You don’t need to own the property to qualify for the solar credit. As long as you reside there, you might be eligible. - “There’s a standard deduction amount for charitable contributions.”
Sorry, only documented donations to qualified charities qualify, and there are strict rules for substantiating both cash and non-cash contributions. - “Being married to a non-resident alien means I can’t file jointly.”
Not true! Under specific circumstances, you can elect to be treated as a single unit for tax purposes and file jointly.
Beyond Debunking: Maximizing Your Homeowner Tax Benefits
Now that we’ve cleared up some common misconceptions, let’s explore some homeowner-specific tax benefits you might be overlooking:
- Mortgage Interest Deduction: This deduction can significantly reduce your taxable income.
- Property Tax Deduction: Depending on your tax situation, you may be able to deduct a portion of the property taxes you pay each year.
- Home Improvement Deductions: Certain energy-efficient upgrades or renovations can qualify for tax credits.
- Home Sale Exclusion: When you sell your primary residence, you can generally exclude up to $250,000 (or $500,000 if married filing jointly) of capital gains from your taxable income.
By familiarizing yourself with these deductions and credits, and consulting with a qualified tax professional, you can ensure you’re taking full advantage of the tax benefits available to homeowners. Remember, tax laws can change, so staying informed is key. Don’t hesitate to reach out to us for further guidance on maximizing your tax deductions and credits.
