If you own your home, you may be eligible for several tax deductions that could potentially trim thousands off your annual tax bill. Get yourself organized now so you can stay on top of any necessary record-keeping to file an itemized tax return and potentially come out ahead the next time you settle up with Uncle Sam.
* The mortgage interest deduction allows you to subtract the interest you pay to your mortgage lender from your taxable income. This deduction is limited to $750,000 for single filers and married couples filing jointly, or $375,000 per person for married couples who file separately.
* You can deduct up to $10,000 of state and local property taxes for a single return, or $5,000 each for married couples who file separately.
* Private mortgage insurance (PMI) payments are also deductible on itemized tax returns.
* If you sell your home for a profit, you may be eligible for a capital gains tax break. Single filers or married joint filers can keep up to $500,000 in capital gains, or $250,000 each for married joint filers. But this tax break is only available if you used the house as your primary residence for at least two of the last five years.
* Home office deductions are available to both homeowners and renters, but only in a permanent residence — a hotel or temporary lodging doesn't count. Your home office must be exclusively dedicated to conducting business in order to qualify (a desk in your basement rec room probably won't qualify), and it must be the principal place you conduct business as well. An office that you use to occasionally work from home also won't qualify and you can't take home office deductions if you are a W-2 employee working remotely.
* Some home improvements are also deductible, including medically necessary improvements (like ramps or modified stairways), certain energy-efficient improvements, and renewable energy systems. Capital improvements that add value to your home or extend its lifespan (like a new roof or furnace) can also reduce any potential capital gains tax burden when you sell your home — but only if you keep the receipts.