Real Estate 101 January 21, 2020

Tax Benefits for Homeowners

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April 15th will be here before you know it, now is the perfect time to review the latest changes to the tax laws to be sure you don’t miss out on the many tax benefits available to homeowners.


1. Property Taxes

You may deduct up to $10,000 ($5,000 if married and filing separately) of property taxes in combination with state and local income taxes or sales taxes.


2. Mortgage Interest

You can deduct a portion of the interest you paid depending on when you took out the mortgage:

  • Dec.16, 2017, and later: You can deduct the interest on up to $750,000 of mortgage debt (or up to $375,000 if you’re married and filing separately).
  • Oct. 14, 1987, through Dec. 15, 2017: You can deduct the interest on up to $1 million of mortgage debt ($500,000 if married and filing separately).

If you refinanced a mortgage, the limit depends on your old loan’s origination date.

  • If the mortgage predates Oct. 14, 1987, all the mortgage interest may be deductible.


3. Home Equity Loan interest

Interest on home equity loans and home equity lines of credit can be deducted only if you spent the borrowed money on home improvements.

  • If your first mortgage is over the deductible limit, the home equity loan interest won’t be deductible.


4. Discount Points

If you’re within the limit to deduct all your mortgage interest, you may also be able to deduct discount points you paid when the mortgage closed.



5. Home Office Expenses

if you’re self-employed and use part of your home regularly and exclusively for your business, you can take a tax deduction of $5 per square foot, for up to 300 square feet of office space, to a maximum deduction of $1,500.

  • See the IRS website to determine whether your home office qualifies for a tax deduction or play it safe and consult with a tax professional.


6. Medically Necessary Home Improvements

You can deduct the cost of installing medically necessary home improvements that benefit you, your spouse or a dependent:

  • Permanent improvements that increase your home’s value are only partly deductible. The deductible cost is reduced by the amount of the property value increase.
  • However, many accessibility improvements, such as entrance ramps, widening doorways or installing railings, usually don’t increase the value of a home and can be fully deducted.


7. Solar Energy

  • Between January 1, 2017, and December 31, 2019 – 30% of the expenditures on solar energy are eligible for the credit.
  • Between January 1, 2020, and December 31, 2020 – 26% of the expenditures on solar energy are eligible for the credit.
  • Between January 1, 2021, and December 31, 2021 – 22% of the expenditures on solar energy are eligible for the credit.


8. Tax benefits to selling your home

If you’ve lived in your primary residence for two out of the five years before you sell it, you’re excluded from paying taxes on any profits up to:

  • $500,000, if you’re married
  • $250,000, if you’re single.


Claiming these tax deductions may only be worth the trouble if all of your itemized tax deductions exceed the IRS standard deductions, which were raised in 2017 with the passing of the Tax Cuts and Jobs Act.

The standard deductions for the 2019 tax year:

  • $24,400 for married couples filing jointly
  • $12,200 for singles and married individuals filing separately
  • $18,350 for unmarried heads of households.

To decide whether to itemize, add up homeowners and other tax deductions you qualify for:

  • If the sum is more than the standard deduction, then itemize.
    • If not, take the standard deduction.


Homeowner costs that are not tax-deductible

  • Insurance premiums, including for mortgage insurance.
  • Homeowner association fees.
  • Transfer taxes or stamp taxes.
  • Cost of utilities.
  • Rent for living in the home before closing.
  • Costs for getting or refinancing a mortgage, such as a loan assumption, credit report and appraisal fees.
  • Depreciation
  • Forfeited deposits, down payments or earnest money.
  • Wages for domestic help.


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