7 Tax Benefits of Owning a Home

Whether you bought a home in 2019 and are filing as a home owner for the first time… how exciting! Or you just need a refresher, these tax breaks may be beneficial to you.

This complete guide to the tax benefits of owning a home, where Realtor.com breaks down all the tax breaks homeowners should be aware of when they file their 2019 taxes in 2020. Read on to make sure you aren’t missing anything that could save you money!

Tax break 1: Mortgage interest

Homeowners with a mortgage that went into effect before Dec. 15, 2017, can deduct
interest on loans up to $1 million.

“However, for acquisition debt incurred after Dec. 15, 2017, homeowners can only deduct the interest on the first $750,000,” says Lee Reams Sr., chief content officer of TaxBuzz.

“The way mortgage payments are amortized, the first payments are almost all interest,” says Wendy Connick, owner of Connick
Financial Solutions.

Note that the mortgage interest deduction is an itemized deduction. This means that for it to work in your favor, all of your itemized deductions (there are more below) need to be greater than the new standard deduction, which the Tax Cuts and Jobs Act nearly
doubled to $24,400 for a married couple. For individuals the deduction is $12,200, and it’s $18,350 for heads of household.

Tax break 2: Property taxes

This deduction is capped at $10,000 for those married filing jointly no matter how high the taxes are.

Just note that this year, property taxes are on that itemized list of all of your deductions that must add up to more than the standard deduction ($24,000 for a married couple) to be worth your while.

And remember that if you have a mortgage, your property taxes are built into your
monthly payment.

Tax break 3:
Private mortgage insurance

If you put less than 20% down on your home, odds are you’re paying private mortgage insurance, or PMI, which costs from 0.3% to 1.15% of your home loan. But here’s some good news for PMI users: You can deduct the interest on this.

“These include the deduction for PMI,” says Laura Fogel, CPA at Gonzalez and Associates in Massachusetts. (This credit is retroactive for 2018, so talk to your
accountant to see if it makes sense to amend your 2018 tax return.)

Why it’s important: The PMI interest
deduction is also an itemized deduction. But if you can take it, it might help push you over the $24,000 standard deduction. And here’s how much you’ll save: If you make $100,000 and put down 5% on a $200,000 house, you’ll pay about $1,500 in annual PMI premiums and thus cut your taxable income by $1,500. Nice!

Tax break 4:
Energy efficiency upgrades

The Residential Energy Efficient Property Credit was a tax incentive for installing
alternative energy upgrades in a home. Most of these tax credits expired after December 2016; however, two credits are still around. The credits for solar electric and solar water heating equipment are available through Dec. 31, 2021, says Josh Zimmelman, owner of Westwood Tax & Consulting, a New
York–based accounting firm.

The Secure Act also retroactively reinstated a $500 deduction for certain qualified energy-efficient upgrades “such as exterior windows, doors, and insulation,” says Fogel.

Why it’s important: You can still save a tidy sum on your solar energy. And this is a
credit, so no worrying about itemizing here. However, the percentage of the credit varies based on the date of installation. For
equipment installed between Jan. 1, 2017, and Dec. 31, 2019, 30% of the expenditures is eligible for the credit. That goes down to 26% for installation between Jan. 1 and Dec. 31, 2020, and then to 22% for installation between Jan. 1 and Dec. 31, 2021.

Tax break 5: A home office

Good news for all self-employed people whose home office is the main place they work: You can deduct $5 per square foot, up to 300 square feet, of office space, which amounts to a maximum deduction of $1,500.

Understand, however, that there are strict rules on what constitutes a dedicated, fully deductible home office space. Here’s more on the much-misunderstood home office
tax deduction.

The fine print: If you work from home
occasionally but have an office to go to,
you can’t take this deduction.

Tax break 6:
Home improvements to age in place

To get this break, these home improvements will need to exceed 7.5% of your adjusted gross income. So if you make $60,000, this deduction kicks in only on money spent over $4,500.

The cost of these improvements can result in a nice tax break for many older homeowners who plan to age in place and add
renovations such as wheelchair ramps or grab bars in slippery bathrooms. Deductible improvements might also include widening doorways, lowering cabinets or electrical fixtures, and adding stair lifts.

The fine print: You’ll need a letter from your doctor to prove these changes were
medically necessary.

Tax break 7:
Interest on a home equity line of credit

If you have a home equity line of credit, or HELOC, the interest you pay on that loan
is deductible only if that loan is used
specifically to “buy, build, or improve a
property,” according to the IRS. So you’ll save cash if your home’s crying out for a kitchen overhaul or half-bath. But you can’t use your home as a piggy bank to pay for college or throw a wedding.

The fine print: You can deduct only up to the $750,000 cap, and this is for the amount you pay in interest on your HELOC and mortgage combined. (And if you took out a HELOC before the new 2018 tax plan for anything besides improvements to your home, you cannot legally deduct the interest.)

Source: Realtor.com

 

 

Posted on February 19, 2020 at 11:22 pm
Denise Perkins | Category: Bellevue, Bothell, Denise Perkins, Eastside, Kenmore, North Kirkland, Puget Sound, Redmond, Snohomish, Snoqualmie, Tax Benefits, Taxes, Woodinville | Tagged , , , , , , , ,

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