Tax season is upon us! Did you know homeowners might get large tax breaks when filing their returns? There are many financial benefits to homeownership, particularly in the form of tax credits and deductions. Whether you’re a first-time buyer or have owned property for a long time, recognizing these tax breaks can help you maximize savings and improve your financial strategy.
In Illinois, where property taxes are among the highest in the nation (averaging 2.07%, nearly double the national average), these deductions can provide much-needed relief. But here’s the catch: The deductions become available when you choose itemized tax reporting instead of the standard deduction option. Homeowners with big mortgage interest and property tax payments should consider itemizing their taxes because it might result in greater savings than using the standard deduction. However, only about 10% of taxpayers choose itemization. You should run the calculations to determine which choice offers the most advantageous results.
This post will discuss the main tax benefits for homeowners, how to optimize them, and how working with a real estate attorney like Ben Weaver of 23 Legal can help you in navigating the challenges of tax planning.
Why Tax Breaks Matter for Homeowners
Being a homeowner means achieving more than just owning property because it provides you with a strategic financial advantage. Homeownership provides numerous tax incentives that make it one of the major benefits for property owners. Tax benefits from homeownership decrease your taxable income which returns extra money to your pocket while reducing housing expenses. As an Illinois resident, you gain significant value from these deductions because the average property tax rate stands at 2.07% which exceeds the national average by nearly half. They can provide much-needed relief, making it easier to manage the costs of owning a home in a high-tax state.
By taking advantage of deductions such as mortgage interest, property taxes, and energy-efficient home upgrades, you can free up funds for other objectives such as retirement savings, education funding, or home renovations. The tax benefits from homeownership promote responsible house purchasing behavior which develops your home equity and establishes stability in the long term.
Tax break navigation becomes difficult because laws change frequently while states have their own individual rules. The valuable assistance provided by real estate lawyer Ben Weaver from 23 Legal becomes essential at this point. Through his expertise, Ben helps homeowners understand tax benefits and ensures they claim all available savings opportunities. Homeowners who need help with their tax filing should work with a trusted legal professional because this partnership ensures better outcomes.
Common Homeowner Tax Deductions in Illinois
The following list includes the most beneficial tax deductions and credits that Illinois homeowners can use:
1. Mortgage Interest Deduction
- How It Works: Property owners who have mortgage loans can deduct their interest payments to a maximum of $750,000 and $1 million if they obtain their loan before December 15, 2017.
- Benefits: The interest payments on your mortgage reduce your taxable income substantially during the initial years of your home loan because of this deduction.
- Eligibility: The deduction is accessible to homeowners who use the federal tax return system to itemize their deductions.
2. Property Tax Deduction
- How It Works: Homeowners who reside in their main property can deduct their state and local property tax payments but only within the annual limit of $10,000($5,000 if married filing separately).
- Benefits: The property tax rates in Illinois are high so this deduction provides substantial value to residents.
- Eligibility: You need to list your deductions in your federal tax return to qualify for them.
3. Home Office Deduction
- How It Works: If you use part of your home exclusively for business purposes, you may qualify for a home office deduction. This can include a portion of your mortgage interest, utilities, and maintenance costs.
- Benefits: Self-employed workers and remote employees find this deduction beneficial because it reduces their taxable income.
- Eligibility: The space must be used regularly and exclusively for business.
4. Energy-Efficient Home Improvements
- How It Works: Homeowners who make energy-efficient upgrades, such as installing solar panels or energy-efficient windows, may qualify for federal tax credits.
- Benefits: The credits function to minimize the expense of upgrades and simultaneously decrease your utility expenses.
- Eligibility: You need to check with a tax professional because specific requirements exist.
5. Capital Gains Exclusion
- How It Works: The capital gains tax exclusion for primary residence sales reaches $250,000 per person (or $500,000 for couples) if you reside in the property for a minimum of two out of the previous five years.
- Benefits: The exclusion enables homeowners to save substantial money at the time of selling their house.
- Eligibility: Must meet ownership and use tests.
Planning and Maximizing Tax Benefits
To make the most of your homeowner tax deductions, follow these tips:
1. Organize Your Documentation
Keep detailed records of all expenses related to your home, including mortgage interest statements, property tax bills, and receipts for home improvements. Accurate deductions and credits become easier to claim because of proper recordkeeping.
2. Time Your Deductions
You should carefully choose when to make specific expenses because it will optimize your tax advantages. For example, prepaying property taxes or making energy-efficient upgrades before the end of the year can increase your deductions.
3. Consult with Tax Professionals
Tax laws are complex and ever-changing. Working with a tax professional or real estate lawyer can help you identify all available deductions and ensure compliance with state and federal regulations.
Here’s What You Can’t Deduct: Homeowner Expenses That Don’t Qualify
While lots of tax benefits are available for homeowners, it is equally important to remain aware of the expenses that are not deductible. Knowing these limitations can save you from an expensive mistake and ensure that you claim your potential tax savings without infringing upon IRS guidelines. Here’s a summary of common expenses that most homeowners tend to consider as deductibles, which are not soundly so:
Homeowners Insurance Premiums
Your homeownership insurance premium, whether for fire, theft, or comprehensive coverage, is not deductible. This also includes title insurance, which is typically paid for in conjunction with the purchase of a property.
Mortgage Principal Payments
Even though the interest on a mortgage is deductible, repayment of the principal balance of the loan (a part of each mortgage payment) is not. Only the interest component of the mortgage payment is eligible for a tax benefit.
Domestic Help and Maintenance Costs
Wages of housekeepers, gardeners, or any other domestic help are non-deductible. In the same way, general repairs and maintenance of your home, e.g., repairing a leaky roof or repainted walls, are not deductible.
Depreciation of Your Home
Unlike rental properties, you cannot deduct any depreciation on your primary residence. From IRS rules, the house is treated as a personal asset instead of a business expense.
Utility Bills
Utility expenses such as gas, electricity, water, and internet or Wi-Fi services are not deductible, even in a home office setting. (Note: If you have a dedicated home office for business purposes, you could potentially deduct a portion of these expenses through the home office deduction.)
Closing Costs and Settlement Fees
Most costs related to purchasing or selling a home, including title fees, appraisal fees, and attorney fees, are not deductible. However, some closing costs, such as property taxes or mortgage interest, may be deductible in select scenarios.
Homeowners Association (HOA) Fees
Your HOA fees, whether monthly or annually, are not deductible, be it for a condo or any neighborhood with a homeowners association.
Forfeited Deposits or Down Payments
You cannot deduct any amount lost in a deposit or down payment for any failed real estate transaction.
Home Improvements
While credits may be available for energy-efficient improvements, general home improvements such as kitchen remodeling or deck installation are not deductible. Still, such improvements increase the cost basis of your home, thereby potentially decreasing the capital gains tax when you sell the property.
The Role of a Real Estate Lawyer in Tax Planning
The process of understanding homeowner tax deductions remains difficult because state regulations combine with regular shifts in tax legislation. Real estate lawyer Ben Weaver at 23 Legal demonstrates his value by providing essential assistance.
Why Work with 23 Legal?
- Expert Guidance: Ben Weaver specializes in real estate and estate planning law, offering tailored advice to help you maximize your tax benefits.
- Personalized Service: Customers at 23 Legal will interact directly with Ben for consistent individualized service.
- Comprehensive Support: The legal services provided by 23 Legal include contract review together with tax strategy advice which creates a complete legal solution for homeowners.
How to Choose the Right Legal Professional
When selecting a real estate lawyer, look for someone with:
- Experience in real estate and tax law.
- A strong reputation in the community.
- A client-focused approach that prioritizes your needs.
Final Thoughts
Tax planning is not just an end-of-year task, but an important aspect of homeownership that can have long-lasting effects on your financial health. Understanding the tax incentives available to you, keeping your paperwork organized, and working with seasoned professionals such as Ben Weaver at 23 Legal can bring significant savings and a more solid financial foundation. These strategies will not only reduce your tax burden, but also contribute to your peace of mind and long-term stability.
Do not leave any potential deductions on the table this tax season! According to Ben Weaver and 23 Legal, homeowners can avail of several deductions that can impact their cash flow. Therefore, homeowners should get a partner to work with to realize the utmost returns from their investments.
Call Ben Weaver to schedule a consultation!
Accomplish your real estate goals with 23 Legal: (847) 447-6004
Why Choose 23 Legal
23 Legal offers Real Estate and Estate Planning legal services to individuals, families, community associations and small business owners throughout Chicagoland. We know how intimidating “the law” can be. In fact, when most people think of law offices, they think of stuffy leather chairs, huge wooden desks and pompous lawyers who charge outrageous fees. That’s not us! We believe in 1-to-1; the same lawyer should work with you all the way through. Whether you have an estate planning issue, family trust concern, or you have a legal problem in regard to a new home, business, real estate or remodel, you need a lawyer who cares. That’s where Ben comes in! We are great listeners; more than that, we are lawyers who believe that our clients always come first.
