The end of the year is drawing near, and homeowners across the state are getting their paperwork in order for tax season. If you own a luxury home in Colorado, there are several tax breaks for homeowners that you might want to consider.
#1 – Interest on Your Mortgage Payments
By far, the largest tax break for homeowners in Colorado has to do with the interest you pay on your mortgage throughout the year. Most of your payment goes toward interest, and this is doubly true if you have a 30-year loan. In fact, you can deduct interest on multiple properties as long as you spend at least 14 days a year (or more than 10% of the number of days you rent it) actually living inside the home. That’s quite a bit of money, and quite a bit of savings.
#2 – Home Improvement Loan Interest
If you took out a home improvement loan, there are even more tax breaks for homeowners. In fact, you can deduct the interest associated with that loan with no dollar limit. As long as the money was used to modify your home for accessibility, improve its longevity, or increase its value, it qualifies. Small repairs you make don’t qualify right now, but that doesn’t mean you shouldn’t save receipts. Colorado homes are gaining value all the time, and if your home appreciates above the tax-free amount, these records may help lower your tax liability in the future.
#3 – Tax Breaks for Homeowners Who Sell Their Homes
In the state of Colorado, sales of homes valued at $250,000 or less for single persons or $500,000 or less for married persons are tax free. In order to qualify for this benefit, you must have owned the home for two years and lived there for two out of the five years before the sale. In certain circumstances that may force you to sell a home, such as a significant financial hardship, the IRS may prorate tax-free proceeds to help reduce some of your liability.
#4 – Property Tax Breaks
Most of your monthly mortgage payments are actually put into an escrow account that is used to pay your property taxes each year. You should receive a statement from your lender each year letting you know how much your property taxes are, and as long as you own your home, this is an annual deduction. If this is the first year you’ve lived in your home, then you will split the tax payments with the seller, each paying taxes for the period you owned the home.
#5 – Loan Points
In Colorado, you can pay points to get a loan with a lower interest rate. The homebuyer pays the points, and each point is equal to 1% of the total value of the loan. This amount is usually paid at closing, before the buyer takes possession of the home. If you’re careful to make sure that the points you purchase meet federal IRS requirements, the points are fully deductible in the year you close.
As you can see, there are tax breaks for homeowners in Colorado that can help ease some of the financial burden associated with buying a home of any size. Whether you have one or more mortgages, an open home improvement loan, or even a significant property tax burden, there are deductions and breaks available.