Real Estate 101 March 29, 2023

Tax Break Opportunities for California Homeowners


A senior first-time home buyer checks her documents for the mortgage interest tax deduction

Old elderly senior caucasian freelancer woman grandmother checking pension documents, loan, e-banking, doing paperwork with laptop, mortgage, paying domestic bills at home

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Exploring tax breaks for California homeowners? From first-time home buyer credits to additional tax credits, getting a handle on the tax benefits of owning a home in California is an invaluable asset. Reinvest in your future with this guide and unlock the full potential of your investments!

What is a Tax Credit?

A tax credit can reduce the amount of taxes owed. It is a dollar-for-dollar reduction, so for every dollar, you receive in a tax credit, it reduces your taxes by that same amount. Unlike a deduction that reduces your taxable income, a tax credit can be used to directly subtract any taxes you owe or increase your refund if you don’t owe anything.

In addition, some credits are even refundable, meaning the IRS will send you money back if you claim more in credits than the total taxes owed.

#1: Mortgage Interest Tax Deduction in California

Often utilized by first-time buyers, homeowners have the advantage of deducting mortgage interest when filing taxes. Loans taken out before December 15, 2017, are eligible for deductions up to $1 million, while loans taken out after this date are only eligible for deductions up to $750,000. The amount one can save in taxes is dependent on how much interest was paid and whether itemizing your deductions makes more financial sense than taking the standard deduction. The standard deduction was increased in 2021, so it may be worth considering before itemizing other deductions such as mortgage interest.

#2: Property Tax Deduction

Married couples filing jointly can take advantage of a $10,000 property tax deduction, but it only makes sense if the total itemized deductions are greater than the standard deduction. For those with mortgages, remember that property taxes are already included in your monthly payments.

#3: Energy Savings Tax Credits

You could take advantage of tax breaks and get up to 30% off the cost of installing solar electric panels or water heaters, plus a lifetime credit of $500 for energy-efficient home improvements such as windows, doors, skylights, insulation, and home energy audits.

From January 1 2023 onwards, the credit will be increased to a maximum of $1,200 per year for eligible properties.

#4: 1099/Self-Employment Office Write Off

Are you a self-employed person working from home? If so, then you’re in luck – the CARES Act allows for a deduction of up to $1,500 for your home office space. However, be sure to look over the fine print as W-2 employees are not eligible for this deduction.

#5: Tax Breaks for Accessibility Upgrades

If you’re an older homeowner looking to age in place, you may be able to take advantage of a taxes break by making home improvements that exceed 7.5% of your adjusted gross income. Examples include wheelchair ramps, grab bars, widened doorways, lowered cabinets or electrical fixtures, and stairlifts.

Just make sure you have a doctor’s letter confirming the changes were medically necessary!

#6: Interest Deductions from HELOC

If you have a home equity line of credit or HELOC, the interest you pay on that loan is tax deductible — but only if the money is used for home-related expenses like renovations or repairs. Keep your receipts in a safe place!

Get the Most Out of Your California Homeownership Tax Breaks

Owning a home in California can provide significant taxable breaks, but you have to do your due diligence to make sure you’re getting the most out of them. There are two main ways to ensure that all of the available tax breaks are taken advantage of:
                – Appealing the taxable value of your home
               – Claiming all applicable deductions and credits

When it comes to appealing the taxable value, this means making sure that your home is evaluated correctly according to its fair market value. This will help reduce your overall tax burden by ensuring that you’re not overpaying taxes for a property that is worth less than what you’re currently paying.

Finally, it is important to make sure that all potential deductions and credits are claimed in order for homeowners to get the maximum amount of savings from their investments. By taking these steps, homeowners can enjoy significant financial benefits from owning a home in California while also reducing their overall taxes burden.

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