How Homeowners Are Reducing Taxes Owed to IRS
What the average American pays in income tax each year can vary widely based on income, tax deductions, credits, and other factors. However, data from the Internal Revenue Service (IRS), the average federal income tax rate for all taxpayers was 14.5% in the 2018 tax year (the most recent data available).
Additionally, many states also impose their own income taxes, which can further affect the total amount of income tax paid by Americans. Some states have a flat tax rate, while others have a progressive tax system where higher earners pay a higher percentage of their income in taxes.
To help reduce the tax burden, American homeowners should look for ways to reduce taxes owed. Using common tax credits and rebates is a great way to reduce taxes owed. While I go into much more detail in my book, House Poor No More: 9 Steps to Grow the Value of Your Home and Net Worth (USA Version), here are six common tax deductions to review before filing your tax return:
Mortgage interest deduction: Homeowners can deduct the interest paid on their mortgage loan throughout the year. This deduction can be claimed on Schedule A of Form 1040.
Property tax deduction: Homeowners can also deduct the property taxes paid on their home during the year. This deduction can also be claimed on Schedule A of Form 1040.
Energy-efficient home improvements: Homeowners who made energy-efficient home improvements, such as adding solar panels or upgrading their HVAC system, may be eligible for the Residential Energy Efficient Property Credit or the Nonbusiness Energy Property Credit.
Home office deduction: Homeowners who use a portion of their home exclusively for business purposes may be able to claim a home office deduction. This deduction is calculated based on the percentage of the home used for business.
Home improvement deductions: Homeowners who made certain home improvements, such as installing energy-efficient windows, insulation, or solar panels, may be eligible for deductions or credits. These deductions and credits vary depending on the type of improvement and when it was made.
Moving expenses deduction: Homeowners who moved for work purposes may be able to deduct certain moving expenses on their tax return.
Casualty and theft losses: Homeowners who experienced losses due to a casualty or theft, such as damage from a natural disaster or burglary, may be able to deduct these losses on their tax return.
Bottom Line
Overall, the amount of income tax paid by Americans can vary widely depending on their individual circumstances, deductions taken, among other reasons. In addition, tax laws and regulations can change, so it’s always best to consult a tax professional for personalized advice on which deductions you may be eligible for and how to claim them properly.
