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End-of-Year Tax Prep for Homeowners: Your Guide to Saving Big This Tax Season

As the year comes to a close, it’s the perfect time to tackle something that’s often on homeowners’ minds: taxes. Whether you’ve just bought your first home or have been living in your house for years, there are some key tax benefits available to homeowners that could help you save big.

If you’re a homeowner in the DMV, this guide is here to help you navigate the ins and outs of preparing for tax season. Let’s dive into some strategies to make the most of your homeownership when it comes to filing your taxes.

Tax Season

Mortgage Interest Deduction: A Major Tax Saver

Owning a home often comes with one of the biggest deductions available: the mortgage interest deduction. Essentially, the interest you pay on your mortgage throughout the year can be deducted from your taxable income, which can really reduce how much you owe the IRS.

How It Works

If you have a mortgage on your home (up to $750,000), you can deduct the interest you pay. Your lender will send you Form 1098 at the end of the year, which shows how much interest you’ve paid. This is what you’ll use when you’re filing your taxes.

Personal Tip: When I bought my first home, I remember being shocked by how much I was paying in mortgage interest. But when tax season came around, it all made sense. That deduction can add up to thousands in savings, depending on your loan and interest rate. So, if you’ve recently bought a home, be sure to keep an eye on that 1098 form—it’s a goldmine for homeowners.

Property Tax Deduction: Don’t Overlook It

Another big benefit for homeowners is the property tax deduction. This one’s especially important if you live in urban areas of Virginia where property values (and taxes) tend to be higher.

How Much Can You Deduct?

You can deduct up to $10,000 of your state and local property taxes, which includes real estate taxes. This is a cap introduced by the Tax Cuts and Jobs Act, but for many urban homeowners, this deduction is still a key way to reduce your taxable income.

If you’re not sure how much you’ve paid in property taxes this year, check your mortgage statement or any tax receipts you have from the local government.

Home Office Deduction: A Rising Star for Remote Workers

If you’re like many homeowners who transitioned to remote work, you might be eligible for the home office deduction. But, this deduction isn’t for everyone, so let’s break it down.

Who Qualifies?

To claim the home office deduction, you must use a part of your home exclusively for business. Unfortunately, this doesn’t apply if you’re an employee working remotely for a company—you must be self-employed to qualify. However, if you run your own business, freelance, or have a side hustle, you could be in luck.

How to Calculate It

There are two ways to calculate your home office deduction:

  1. Simplified Method: You can claim $5 per square foot of your home office, up to 300 square feet.
  2. Actual Expenses: This method involves calculating the percentage of your home used for business and applying that to your total home expenses (like utilities, mortgage, and maintenance).

Pro Tip: When I started working from home full-time, I converted our guest bedroom into an office. By keeping detailed records of the space and my home-related expenses, I was able to take advantage of this deduction, making it worth the effort to track everything.

Energy-Efficient Upgrades: Green Your Home, Boost Your Refund

Have you made energy-efficient improvements to your home this year? You might qualify for federal tax credits that can further reduce your tax bill.

Qualifying Upgrades

Some common energy-efficient home improvements that qualify include:

  • Installing solar panels
  • Adding energy-efficient windows or doors
  • Upgrading to an energy-efficient HVAC system

The federal government offers a Residential Clean Energy Credit for homeowners who make these upgrades. The credit is typically a percentage of the cost of the improvements, which can be a significant amount, especially for larger investments like solar panels.

How to Claim

Keep all receipts and documentation of your improvements. When tax time rolls around, you’ll be able to file for these credits to offset your taxable income.

Real-Life Story: A neighbor of mine went solar last year, and not only did she save money on her energy bills, but she also got a hefty tax credit that made the upfront cost more manageable. If you’ve been thinking about going green, this is just one more reason to make the switch.

Capital Gains Exclusion: When It’s Time to Sell

Thinking about selling your home in the next year or two? One of the best tax perks for homeowners is the capital gains exclusion, which could save you thousands if you meet the requirements.

How It Works

When you sell your primary residence, you can exclude up to $250,000 of the profit from the sale if you’re single, or up to $500,000 if you’re married filing jointly. The key is that you must have lived in the home as your primary residence for at least two of the last five years.

This exclusion can be a huge relief for urban homeowners, especially in Virginia cities where property values have risen steadily over the years. If you’ve owned your home for a while, chances are you’ve built up some significant equity.

Plan Ahead

If you’re thinking about selling soon, make sure you meet the residency requirements to take full advantage of the capital gains exclusion. If not, it might be worth staying put a little longer to avoid paying taxes on your sale profits.

Points Deduction: Buy Down Your Interest Rate, Buy Down Your Taxes

Did you pay points to get a lower interest rate on your mortgage? If so, you can deduct those points, which are essentially prepaid interest.

How to Claim

If you bought or refinanced your home this year and paid points, those costs are usually deductible in the year you paid them. Just like with mortgage interest, you’ll find this info on your Form 1098.

Itemizing vs. Standard Deduction: What’s Best for You?

Deciding whether to itemize your deductions or take the standard deduction is a crucial step in tax prep. For many homeowners, itemizing can offer more significant savings, but it’s not always the best choice.

When to Itemize

If your total deductions—like mortgage interest, property taxes, and charitable contributions—add up to more than the standard deduction ($13,850 for singles, $27,700 for married couples in 2023), you should consider itemizing.

When to Take the Standard Deduction

If your total deductions don’t surpass the standard deduction, it’s easier to stick with the standard deduction and save yourself the headache of itemizing.

Get Organized: Keep Those Records Handy

Before you get overwhelmed, the key to smooth tax preparation is organization. Start gathering the documents you’ll need now, so you’re not scrambling in April. Keep things like:

  • Mortgage interest statement (Form 1098)
  • Property tax payment receipts
  • Receipts for home office expenses or energy-efficient improvements
  • Proof of home sale (if applicable)

There are plenty of digital tools, like Evernote or even your phone’s Notes app, to help keep everything in one place.

Helpful Tip: I’ve found that keeping a specific folder on my computer for “Home Tax Docs” has been a game changer. At the end of the year, I drop in all my relevant tax forms and receipts so they’re ready to go when tax season hits.

Wrapping It Up: Take Action Now for Big Savings

Taking the time now to prepare for tax season can save you from stress later—and potentially save you a lot of money. From mortgage interest and property tax deductions to credits for energy-efficient upgrades, being a homeowner comes with some major financial perks. By staying organized and knowing what to look for, you can make the most of your tax return this year.

And remember, if taxes ever feel overwhelming, don’t hesitate to reach out to a tax professional who can offer tailored advice based on your situation. As your local real estate expert, I’m also happy to answer any questions you have about buying, selling, or maintaining your home to ensure you’re maximizing all the benefits available to you!

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