It’s that time of year again. Tax season is upon us and if you are a homeowner, there are a few different ways to maximize your refund. You may recall the new Tax Cuts and Jobs Act, the most substantial overhaul to the U.S. tax code in more than 30 years, went into effect on Jan. 1, 2018. And as a result, last year likely brought big changes to your taxes, especially the tax perks of homeownership. Here are 7 tax benefits that you can utilize and maximize your refund.
1.) Property Taxes
This deduction is capped at $10,000 for those married filing jointly, regardless of the amount of taxes that you pay. 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.
2.) Home Improvements to Age in Place
This tax break is great 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 stairlifts. 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. You will need a letter from your doctor to prove these changes were medically necessary.
3.) Mortgage Interest
If you obtained your mortgage before Dec. 15th, 2017, you can deduct interest on loans up to $1 million. If you obtained your mortgage after Dec. 15th, 2017, you can only deduct interest on the first $750,000. The ability to deduct the interest on a mortgage continues to be a big benefit of owning a home. And the more recent your mortgage, the greater your tax savings. This is because the first payments are almost all interest. Mortgage interest deduction is an itemized deduction. This means that for it to work in your favor, all of your itemized deductions 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. For some homeowners, itemizing simply may not be worth it. So, when would itemizing work in your favor? As one example, if you're a married couple who paid $20,000 in mortgage interest and $6,000 in state and local taxes, you would exceed the standard deduction and be able to reduce your taxable income by an additional $2,000 by itemizing.
4.) Private Mortgage Insurance
If you put less than 20% down on your home, odds are you're paying private mortgage insurance, which costs from 0.3% to 1.15% of your home loan. You can deduct the interest on this insurance thanks to the Mortgage Insurance Tax Deduction Act of 2019. Also known as the Secure Act, it retroactively reinstated for 2018 and 2019 certain deductions and credits for homeowners. The private mortgage insurance 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 private mortgage insurance premiums and thus cut your taxable income by $1,500.
5.) Interest on a Home Equity Line of Credit
If you have a home equity line of credit, the interest you pay on that loan is deductible only if that loan is used specifically to buy, build, or improve a property. You will save cash if your home needs a kitchen overhaul or half-bath. You can deduct up to $750,000, and this is for the amount you pay in interest on your home equity line of credit and mortgage combined.
6.) Home Office
If you have a home office that is the main place you 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, there are strict rules on what constitutes a dedicated, fully deductible home office space. If you work from home occasionally but have an office to go to, you can't take this deduction.
7.) Energy Efficiency Upgrades
The credits for solar electric and solar water heating equipment are available through Dec. 31, 2021. The Secure Act also retroactively reinstated a $500 deduction for certain qualified energy-efficient upgrades such as exterior windows, doors, and insulation. 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.
https://www.realtor.com/advice/finance/tax-benefits-of-owning-a-home/?cid=eml_shares_article By Dillon Landfried - Mar 4, 2020