Tax Credits for New Home Construction
Are you building a new home?
There are tax breaks available for people in this situation. They come in the form of tax deductions and tax credits. A credit is used to reduce the amount you pay, and a deduction reduces your total taxable income.
Here are some of the tax write-offs available to you now.
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Did You Pay Interest on a Construction Loan?
If you took out a construction loan to build your home, then chances are you paid interest on that loan.
You can claim the interest paid on the initial 24 months of that loan when you file your taxes.
Keep in mind that this home had to have been either your primary or secondary residence. The deduction only applies to loan limits of $1 million.
Also, if you’re married but filing separately, the deduction only applies to the first $500,000 of the loan.
Did You Pay State Sales Tax?
When you purchased building materials, you may have paid state sales tax.
If the amount you paid was larger than the amount of your local or state income tax, you can deduct the state sales tax you paid from the amount you pay to the Federal government.
Again, this is an itemized deduction. You also can’t take the local and state deduction for income tax if you take the state sales tax deduction.
You need to choose one of them.
Green Tax Credits
There are several home energy tax credits available. These apply to geothermal pumps, solar energy upgrades, and wind turbines.
They were worth 30% of the installation cost with no maximum limit.
The other main green tax credit is for 30% of the installation cost for installing fuel cells. It is worth $500 for every half-kilowatt of total power capacity.
The difference here is that it can’t be used in conjunction with your secondary residence.
Does Your State Offer Green Credits and Deductions?
Depending on where you live, your state may have credits and deductions available for various energy and green upgrades.
For example, many states offer tax breaks for installing solar panels and wall insulation.
Make sure you look into this to make sure you’re not inadvertently missing out on a tax break.
How to Claim These Tax Breaks
To claim new home tax credits, you need to claim them through Form 1040. None of these deductions can be claimed via the standard deduction. They need to be itemized.
Are you claiming an IECC credit? The rules are slightly different. You need to file Form 8908.
Finally, remember online tax preparation will check the requirements of any state tax breaks to ensure you qualify and that you claim them correctly.