Are you looking to build a new home?
There are a range of tax credits for new home construction that can alleviate some of the associated costs.
There are two types of tax breaks available to you: tax deductions and tax credits. A tax credit deducts a certain amount of your tax bill dollar-for-dollar. A tax deduction will reduce your amount of taxable income for the year.
As you can imagine, a tax credit is more valuable. Here are some of the tax breaks available.
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Construction Loan Interest
For the first 24 months of the construction loan, you can deduct the interest payments from your tax bill.
However, this only applies if the finished building is going to be your primary or secondary residence.
It also only applies to the initial $1 million of the loan. If you’re married and filing separately, this amount is reduced to $500,000.
State Sales Tax Deduction
The chances are you paid some state sales tax on the building materials for your new home. In this situation, you can deduct the amount you paid in state sales taxes from your total Federal tax bill.
Again, this is a type of itemized deduction. Furthermore, you can’t use it together with any state or local tax deductions.
Green Tax Credits
The Federal government wants to encourage taxpayers to go green, so there are two primary green tax credits you can take advantage of. These apply to solar energy systems, wind turbines, and geothermal heat pumps.
These green tax credits were extended and if you make the purchase and installation before December 31st, 2019, you can claim back 30% of the total purchase and installation price. There’s also no upper limit on how much you can claim.
The installations must be designed for either a primary or secondary residence.
There are also tax credits available for both microturbine and fuel cell systems. Again, the credit is worth 30% of the cost of the purchase and installation. The limit is $500 per half-kilowatt of capacity.
State Green Tax Credits
Individual states and municipalities also may have green tax breaks for qualifying homeowners. They come in the form of both tax credits and tax deductions.
The most common tax breaks involve savings on the installation of solar panels, wall insulation, and AC units.
You do need to keep in mind that the qualification requirements vary heavily between locations. Some tax credits may only apply to commercial buildings.
Check with your state or municipality to find out more about the different programs available.
How Do You Claim Tax Breaks?
If you file your taxes online it’s easy to claim Federal tax credits and tax deductions. If you’re claiming these deductions, you’ll need to itemize, which also prevents you from claiming the standard deduction. Make sure you calculate whether it’s worth itemizing as the standard deduction is worth more than $12,000.
Finally, if you’re claiming any sort of IECC credit, you’ll need to fill out IRS Form 8908.