When it comes to owning a home there are several tax breaks to look at when filing your taxes. In 2018 the Tax Cuts and Jobs Act was passed which gave homeowners a tax break as part of the act. Here are the tax benefits for homeowners to think about when it comes to tax time.
This is a huge benefit when it comes to your taxes. A homeowner can deduct the interest on a mortgage giving huge tax savings. This itemized deduction amount just increased for the 2020 tax year. In 2019 the deduction for an individual was $12,200 and in 2020 it is now $12,400, for married couples filing jointly the deduction in 2019 was $24,400 and is now $24,800 (plus $1,300 for each spouse 65 or older). An example where this would be a benefit is if you’re a married couple under 65 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 $1,200 by itemizing.
This deduction is capped at $10,000 for homeowners filing married jointly. Property taxes are another itemized deduction that can save you money. Just remember that if you have a mortgage, your property taxes are built into your monthly payment.
Private mortgage insurance
When you first obtain your mortgage, if you do not put at least 20% down, you will be charged PMI which is private mortgage insurance. This can costs from 0.3% to 1.15% of your home loan. The interest on PMI can also be deducted when it comes to filing your taxes. This is made possible by the Mortgage Insurance Tax Deduction Act of 2019. This itemized deduction can save someone who makes $100,000 who puts 5% down on a $200,000 home $1,500 on your taxable income.
Energy efficiency upgrades
Although most of the tax credit for energy efficiency expired in 2016 there are still two that you can benefit from. Josh Zimmelman, owner of Westwood Tax & Consulting, a New York–based accounting firm, explains that homeowners can still benefit from the credit for solar electric and solar water-heating equipment. You can also benefit from the SECURE Act which gives a $500 deduction for upgrades such as qualified energy-efficient windows, doors and insulation.
A home office
This is a big deal in this day in age. When the pandemic hit, most people had to work from home. A home office became a staple in the typical American home. If your home office is your main office and you are self-employed, you can deduct $5 per square foot on up to 300 square feet. This can save a homeowner another $1,500. This deductible does not apply to a W-2 employee.
Home improvements to age in place
These are improvements made to a home for medical needs. Examples are adding a wheelchair ramp, grab bars in bathrooms, widening doorways, lowering cabinets or electrical fixtures and adding a stairlift. Note that the home improvements must go over 7.5% of your adjusted gross income.
Interest on a home equity line of credit
The interest that is paid on a home equity line of credit (HELOC) can also be deducted. The HELOC must be noted that it is for “buy, build, or improve a property.” The cap for this deduction is $750,000 and this will be the interest you pay on the HELOC and mortgage combined.