Homeownership offers several tax benefits that can help reduce the overall tax burden for homeowners. These benefits include deductions for mortgage interest and property taxes, potentially resulting in significant savings on federal and state income taxes. Additionally, homeowners may qualify for programs such as the Homestead Rebate in New Jersey, providing rebates on property taxes paid. When selling a primary residence, homeowners may benefit from capital gains exclusions on profits from the sale, subject to certain limits. Furthermore, tax incentives for energy-efficient improvements and renewable energy installations can further reduce tax liabilities. Overall, these tax advantages make homeownership an attractive option for individuals looking to build wealth and financial stability while enjoying the benefits of owning a home.
Here are some specific programs to lessen your tax burden:
- Mortgage Interest Deduction: Homeowners in New Jersey can deduct the interest paid on their mortgage loan from their federal income taxes. This deduction can be significant, especially in the early years of the mortgage when most of the monthly payment goes toward interest.
- Energy Efficiency Tax Credits: Federal and state governments often offer tax credits for making energy-efficient improvements to a home. These improvements can include installing solar panels, energy-efficient windows, or upgrading heating and cooling systems. Homeowners in New Jersey may be eligible for these tax credits, which can help offset the cost of such improvements while also reducing energy bills.
- Affordable New Jersey Communities for Homeowners and Renters (ANCHOR): This program provides property tax relief to New Jersey residents who own or rent property in New Jersey as their principal residence and meet certain income limits. The current filing season for the ANCHOR benefit is based on residency, income, and age.
- Homestead Rebate: New Jersey offers a Homestead Rebate program for eligible homeowners. This program provides a rebate on a portion of property taxes paid, providing direct financial relief to homeowners.
- Capital Gains Exclusion: When selling a primary residence in New Jersey, homeowners may be eligible for a capital gains exclusion on the profits from the sale. This exclusion can be up to a certain limit, providing tax savings for homeowners who have seen appreciation in the value of their home.
- Property Tax Deduction/Credit for Homeowners and Renters: Homeowners and renters who pay property taxes on a primary residence (main home) in New Jersey, either directly or through rent, may qualify for either a deduction or a refundable credit when filing an Income Tax return. The property tax deduction reduces your taxable income. You can deduct your property taxes paid or $15,000, whichever is less. For Tax Years 2017 and earlier, the maximum deduction was $10,000. For renters, 18% of rent paid during the year is considered property taxes paid. Keep in mind that the amount of property taxes paid that you can deduct depends on a number of factors, such as the number of owners or units. Visit Determining the Amount of Property Taxes Paid for more information.
- Annual Property Tax Deduction for Senior Citizens, Disabled Persons: Annual deduction of up to $250 from property taxes for homeowners age 65 or older or disabled who meet certain income and residency requirements. This benefit is administered by the local municipality.
- Annual Deduction for Veterans: Annual deduction of up to $250 from taxes due on the real or personal property of qualified war veterans and their unmarried surviving spouses/surviving civil union partners/surviving domestic partners. This benefit is administered by the local municipality.
- Property Tax Exemption for Disabled Veterans: Full exemption from property taxes on a principal residence for certain totally and permanently disabled war veterans and their unmarried surviving spouses/surviving civil union partners/surviving domestic partners. Unmarried surviving spouses/surviving civil union partners/surviving domestic partners of servicepersons who died on wartime active duty may also qualify. This benefit is administered by the local municipality.
- Senior Freeze (Property Tax Reimbursement): The Senior Freeze Program reimburses eligible senior citizens and disabled persons for property tax or mobile home park site fee increases on their principal residence (main home). To qualify, you must meet all the eligibility requirements for each year from the base year through the application year.
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Note: Income Tax Treatment of New Jersey Property Tax Benefit Payments Affordable New Jersey Communities for Homeowners and Renters (ANCHOR), Homestead Benefit, and Senior Freeze (Property Tax Reimbursement) payments are not taxable for New Jersey Income Tax purposes and should not be reported on the New Jersey Income Tax return. Information on the federal tax treatment of these payments, called "recoveries" by the IRS, can be found in the federal Form 1040 instructions and IRS Publication 525, Taxable and Nontaxable Income, which are available on the IRS website.
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It's important for homeowners to consult with a tax professional or financial advisor to understand the specific tax benefits available to them based on their individual circumstances and any changes in tax laws.
Karl Hess provides expert real estate services to residential buyers and sellers in Ocean County. Contact us today for more information on Ocean County Real Estate and for professional assistance navigating this complex home market.
This content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Again, it's important for homeowners to consult with a tax professional.
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