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Top Homeowner Tax Deductions That Decrease Your Tax Burden

Heather Tawes Nelson

Heather holds an MBA as well as a Masters in International Management...

Heather holds an MBA as well as a Masters in International Management...

Feb 7 9 minutes read

Top Homeowner Tax Deductions That Decrease Your Tax Burden

Taxes are a reality we all face. They have to be paid and we all need to pay our fair share. However, paying your fair share shouldn't place an unjust burden on you. As a homeowner, your tax burden is doubled because you pay both income and property taxes.

To decrease that burden and boost your tax savings, it is worthwhile to take advantage of homeowner tax deductions. You can then use those savings to help fund a vacation, build up your child's college fund, increase your retirement fund, use them toward a home improvement project or even just save them for another day.

Home Improvement Tax Deduction

So much of our time is spent at home, and you want it to be as comfortable as a place to live as possible. If your home needs some upgrades, you might want to consider some improvements that will help pay for themselves via the tax savings you will benefit from.

For instance, there is an energy-efficient tax credit of up to $500 for installing storm doors and energy-efficient insulation and air-conditioning and heating systems. Something like switching out your old windows for energy-efficient ones could earn you $200. This particular credit expires on December 31st of 2016, so this will be your last chance to take advantage of the tax credit for making your home more energy efficient.

Did you know that installing equipment that uses renewable sources of energy makes you eligible for the Renewable Energy Efficiency Property Credit? This credit covers 30% of the cost of equipment and its installation. If you are interested in this path, be sure to get it done this year as this credit also expires on December 31st.

Mortgage Interest and Refinancing

If you dread paying your mortgage payment each month, you’ll be glad to know you may be able to deduct taxes on the following:

* Interest toward mortgage

* Mortgage payments for additional property

* Rental properties

* Refinancing and home equity lines of credit (HELOC) up to $100,000 of debt.

If you own multiple properties, the mortgage interest on additional property can be deductible as well. Interestingly enough, the property itself doesn't have to be a house. It can be a boat or RV; as long as it has cooking, sleeping and bathroom facilities, it counts as additional property.

Regarding using your second home as a rental, you typically need to vacation at least 14 days at the property or spend more than 10 percent of the number of days you rent it out.

Furthermore, you may be able to claim points on your mortgage the year you paid them if the following happened:

* The loan was to purchase or build your main home

* Payment of points is an established business practice in your area and the points were within the usual range

Property Taxes

Property taxes can be a great tax deduction as the property taxes you pay each year are tax deductible. The amount of property taxes you paid for the year shows up on your lender's annual statement. You must deduct them as an itemized expense on your Schedule A tax form.

If you were a first-time homebuyer last year, you will want to take a look at your settlement sheet to see additional tax payment data. You may deduct the portion of property taxes you paid during the first year of your homeownership.

Appealing Your  Assessment to Lower Your Property Taxes

Although property taxes are a given, you can make sure that you are paying a reasonable amount based on the true value of your home and land. Many homes get overvalued because assessors err in valuing a home and homeowners don't pay attention to these mistakes. As a result, homeowners end up paying more than they should in property taxes for their home.

But, if you’ve owned your home for more than a year, you could potentially lower your property tax burden by showing that your home has been overvalued, meaning that your tax assessment claims your property is worth more than it is.

Even if the number on the tax assessment seems close, you should still consider protesting your property tax. Typical savings from a successful tax appeal or protest is over 15%!

According to SmartAsset, the national median property tax paid is roughly $2,839.00. That's about 1.192 percent of a home valued at $238,200.00.

If you're able to reduce your assessed value by 15 percent to $202,470.00 and consequently save 15 percent on your tax bill, your new tax bill will be about $2,413.00. That’s a savings of $426.00!

Want to know how to get started on protesting your property tax? Begin by reading your assessment letter. Your assessment letter will list data about your property and the assessed value of your house and land. You want to verify that your assessment letter has the correct information about your property.

Knowing that assessors can make mistakes assessing your home value will help you with your appeal. There are three key mistakes assessor make when assessing property. These mistakes include:

Outdated  Historic Sales Data: Sometimes assessors will use sales data from previous years. However, because the real estate market is fluid, this data changes quickly, as a result; this data can overvalue your home.

Mass  Appraisal Methods: When assessors use mass appraisal methods, they do not take into account all the market adjustments that have occurred over time. Consequently, their sales data does not always produce useful comparable properties to set future sales.

Living  Area: One of the most common mistakes is regarding the living area of your home. This is especially true if you live in a 1.5 or 2 story home. You will want to check any previous appraisals to ensure the correct measurements and description of your home. Does the assessment letter show the correct number of bathrooms and bedrooms? Does it report the actual size of your lot? Because .5 acres differs greatly than 5.0 acres.

After reading your assessment letter, consult a Realtor. We should be able to locate three to five comparable properties with approximate values similar to yours. These comparables can then be used to support your claim that your home is overvalued. This is especially useful if the assessor used poor historical sales data.

The Maricopa County Assessor’s Office has a wealth of information online about Property Value Appeals, including information on how to appeal, forms to do so and much more.

The 2016 Tax Year Deadlines in Maricopa County, Arizona are as follows:

  • The 2017 Notice of Valuation will be mailed on February 19, 2016
  • The Property Owner has until April 19, 2016 to file the 2017 Petition for Review of Real Property Valuation

Since you have a limited window to file an appeal of your assessment, you’ll want to get the comps as soon as your assessment arrives.

You'll then need to fill out the proper form(s) and follow the specific instructions regarding your supporting evidence.

The Assessor must respond to all appeals on or before August 15, 2016.

The majority of assessment appeals are successful. However, if at first you don't succeed, you have the option to appeal to the State Board of Equalization (SBOE) within 25 days of receiving the Assessor’s Appeal decision. You will have a decision back from the SBOE on or before October 15, 2016. 

Another option for Maricopa homeowners is to bypass the Assessor/SBOE Appeals process is to go straight to the Arizona Tax Court or Small Claims Court. For this option, you have until December 15, 2016 to file.

Here is a link to the Maricopa County Assessor’s Appeals Page as well as a Property Appeals Handout that goes over the key points and deadlines.

As you can see, as a homeowner, you have plenty of options available to decrease your tax burden. The benefit is that you can use your tax savings for major life events such as weddings, vacations, and home improvements, or even save them for another use down the line.

To find out more about your tax saving options as a homeowner, check out tax information for homeowners. You can also contact us directly and we'll gladly lead you in the right direction towards saving you money on your taxes.

Disclaimer: This post is for informational purposes only and is not intended as tax advice. For all questions relating to tax deductions, tax credits and property taxes, please consult with your tax professional, your accountant and/or your local assessor's office. Information deemed reliable, but not guaranteed.

Image courtesy of MoneyBlogNewz

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