How to Maximize Your IRS Tax Deductions
Plan your mortgage payments to maximize deductions., Keep records of mortgage interest payments., Use a home equity loan for large expenses., Report your home mortgage interest payments on Schedule A., Earn a tax credit for certain energy efficiency...
Step-by-Step Guide
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Step 1: Plan your mortgage payments to maximize deductions.
Your interest payments on most home mortgages are tax deductible.
If you time your payments, you may be able to increase your deduction for a particular year.
For example, as the end of 2016 approaches, you could prepay your January 2017 payment in December.
If so, the extra payment will be deductible on your 2016 tax return.The IRS measures the date that the payment is actually made, not the date that the payment is considered due by your lender. -
Step 2: Keep records of mortgage interest payments.
You should retain copies of checks or other forms of payment that you use.
Your lender should be able to provide you with a statement at the end of the year that contains a total of your payments.
The lender’s statement should break your payment totals into the amount that was applied to the principal of your loan and the amount that paid interest.Only the interest on your home mortgage is deductible.
You cannot deduct the payments that pay down the principal of your loan. , If you need to make renovations on your home or need money for large, irregular purchases, you should consider obtaining a home equity loan.
Such a loan, secured by your home, falls into the category that creates deductions for the interest payments.
This is generally preferable, from a tax standpoint, to taking an unsecured loan or incurring charges on your credit card.For example, if you need $10,000 for certain expenses, you could get a home equity loan secured by your home.
The interest that you incur on this loan will be tax deductible. , When you are preparing your tax return, you will need to report your interest payment deductions on Schedule A.
You can find this schedule by going to the official IRS website at www.irs.gov and then the “Forms & Pubs” tab., You may claim a tax credit for up to 30% of whatever you spend to make certain improvements to your home to conserve energy.
The improvements that are included in this tax credit are those for solar electric systems, solar water heaters, fuel cells, small wind energy systems, and geothermal heat pumps.
You will need to use IRS Form 5695 to calculate the amount of your allowable credit.
The amount of your credit is entered on Line 53 of your Form 1040 tax return.
While a tax deduction reduces the amount of your taxable income, a credit is a direct reduction of the tax that you owe. -
Step 3: Use a home equity loan for large expenses.
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Step 4: Report your home mortgage interest payments on Schedule A.
-
Step 5: Earn a tax credit for certain energy efficiency improvements.
Detailed Guide
Your interest payments on most home mortgages are tax deductible.
If you time your payments, you may be able to increase your deduction for a particular year.
For example, as the end of 2016 approaches, you could prepay your January 2017 payment in December.
If so, the extra payment will be deductible on your 2016 tax return.The IRS measures the date that the payment is actually made, not the date that the payment is considered due by your lender.
You should retain copies of checks or other forms of payment that you use.
Your lender should be able to provide you with a statement at the end of the year that contains a total of your payments.
The lender’s statement should break your payment totals into the amount that was applied to the principal of your loan and the amount that paid interest.Only the interest on your home mortgage is deductible.
You cannot deduct the payments that pay down the principal of your loan. , If you need to make renovations on your home or need money for large, irregular purchases, you should consider obtaining a home equity loan.
Such a loan, secured by your home, falls into the category that creates deductions for the interest payments.
This is generally preferable, from a tax standpoint, to taking an unsecured loan or incurring charges on your credit card.For example, if you need $10,000 for certain expenses, you could get a home equity loan secured by your home.
The interest that you incur on this loan will be tax deductible. , When you are preparing your tax return, you will need to report your interest payment deductions on Schedule A.
You can find this schedule by going to the official IRS website at www.irs.gov and then the “Forms & Pubs” tab., You may claim a tax credit for up to 30% of whatever you spend to make certain improvements to your home to conserve energy.
The improvements that are included in this tax credit are those for solar electric systems, solar water heaters, fuel cells, small wind energy systems, and geothermal heat pumps.
You will need to use IRS Form 5695 to calculate the amount of your allowable credit.
The amount of your credit is entered on Line 53 of your Form 1040 tax return.
While a tax deduction reduces the amount of your taxable income, a credit is a direct reduction of the tax that you owe.
About the Author
Evelyn Campbell
Creates helpful guides on pet care to inspire and educate readers.
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