Claiming your house on your taxes is one of the benefits of home ownership. There are several ways to enjoy tax benefits on your home. If you run a business and use your home for qualified business purposes, you are eligible to claim certain home expenses on your taxes.
Schedule A is a form for itemized deductions. Most homeowners use this schedule when preparing their annual tax returns. Deductible home expenses include property taxes paid and interest paid to mortgage lenders, including interest paid on home equity loans. Gather documentation that shows how much you paid in deductible expenses. Your mortgage lender will send you this in a 1098 form in January; some lenders also will include the annual amount paid in real estate taxes.
Enter the amount of property taxes you paid on line 6 of Form 1040 Schedule A. You might need to add any city, county and state taxes paid.
Enter the amount shown on Form 1098 received from your mortgage lender on line 10 of Schedule A. Keep in mind that if you have more than one lender, you will enter on line 10 the total from all 1098s received.
Enter the amount you paid for mortgage interest to a person or business on line 11. In some situations, you do not pay the interest to a bank. Keep documentation in case of an audit.
Enter the amount of mortgage discount points on line 12 that you paid to an individual or business not reported on Form 1098. Your lender will list qualified mortgage discount points on the 1098 that it sends you. This will not include origination points, which are not deductible.
Claiming Business Use of Your Home
Research whether you qualify for a home office deduction. Typically, this means that your home is your primary place of business, where you meet with clients and perform daily business functions. Other qualifications include using your home for day care or renting part of it to someone else.
Gather documentation for expenses related to your home. This includes utility and insurance bills and any other home-related expenses.
Deduct depreciation of your home if you have a home office. To figure your allowable deduction, you first need to determine its full annual depreciation. Per Publication 946, the IRS stipulates that real estate is depreciated over 39 years. Use Table A-7a on page 79 of Publication 946 to determine the depreciation amount. This is what you would deduct if 100 percent of the property is used for business purposes. This figure multiplied by the business-use percentage calculated in the next step determines your deductible home office depreciation expense.
Write down your business-use percentage. If you use 100 square feet of a 1,000-square-foot home, your business-use percentage is 10 percent (100/1,000).
Multiply your expenses by the business-use percentage. This is the amount of deductible home office expenses. In some instances you will not be able to deduct the full amount. Such situations are complicated, so check IRS Publication 587 to see how it applies to you (see References).
Contact a qualified tax professional if you are confused about claiming your house on your taxes.
Do not stretch the truth on your home office expense deductions. The IRS is likely to find out and it will recompute your deduction. You will face penalties and interest on the difference between their calculation and yours.
Things You'll Need
Mortgage interest statement
Property tax bills