Welcome to your home tax deduction checklist! For homeowners, this guide is a godsend since, let’s face it, the new tax plan bill has caused a flurry of confusion. Don’t worry, the old IRS codes still apply to filing this year, but that also means it’s your last chance to take advantage of many traditional tax deductions (which is money you shave off your taxable income) as well as tax credits (more money shaved off your taxes).
So be sure to check out this comprehensive list of all the tax breaks homeowners should consider taking this year—plus a preview of what’s in store for the next filing season once the new 2018 tax codes kick in.
This year, you can deduct the interest from up to $1 million in mortgage debt (or $500,000 if you file singly), explains Betterment’s head of tax Eric Bronnenkant, who’s also a certified public accountant and certified financial planner. It does require itemizing deductions, but it’s worth the hassle, especially for new homeowners.
Mortages are structured so that you start off paying more interest than principal. In the first year of a $300,000, 30-year fixed-rate loan at 4% interest, you’d be deducting $10,920.
Changes for 2018: “For loans taken out from Dec. 15, 2017, onward, only the interest on the first $750,000 of mortgage debt will be deductible next year,” says William L. Hughes, a certified public accountant in Stuart, FL.
In other words, if your loan was taken before Dec. 15, 2017, or is under $750,000, nothing changes next year. Only high rollers with large, new loans will feel the pinch.
If you bought a home in 2017 and paid points, then you can deduct those from your taxes. They must be “true,” or discount, points, not origination points. After all, points are essentially mortgage interest that you prepay, so it makes sense that they’d be treated like the rest of your mortgage interest. Each point is 1% of the loan amount, so if you paid 2 points on that $300,000 loan, you can deduct $6,000.
Changes for 2018: None, except that deductible interest on new loans will be subject to the new $750,000 debt limit.
If you can’t make a 20% down payment on your home, most lenders require that you pay private mortgage insurance. The upside: It’s tax-deductible as long as your adjusted gross income is less than $100,000. (For each $1,000 you make after that, you can deduct 10% less of your PMI, up to $109,000.) PMI is generally between 0.3% and 1.5% of the loan amount annually, so on a $300,000 loan, you’d be deducting between and $900 and $4,500.
Changes for 2018: So far, Congress has renewed this deduction for only the 2017 tax year, says Hughes. Unless a new bill is passed sometime this year that will keep this deduction afloat, PMI won’t be deductible when you file next year.
Homeowners often take out a home equity loan or home equity line of credit in order to tap into some quick cash—for college, weddings, home improvements, or otherwise—using their home as collateral. And up until 2017, homeowners could deduct the interest on home equity debts up to $100,000 for married joint filers and $50,000 for individuals. So if you pulled out a 15-year loan for $50,000 at 7% interest to pay for a child’s college tuition, that would be a deduction amounting to $3,438 in your first year.
Changes for 2018: “Home equity debt interest deductions have been eliminated,” says Bronnenkant—that is, unless you spend the money on one thing only: home improvements.
So if you’re eager to renovate that kitchen, this deduction still stands, but if you have to foot the bill for your daughter’s wedding, the IRS will no longer pitch in, explains Amy Jucoski, a certified financial planner and national planning manager at Abbot Downing.
And unlike with mortgage interest deductions, the new rules on home equity debt apply to all loans regardless of when they were taken. You’d better deduct that interest while you can!
For the last time this year, your property taxes are fully tax-deductible.
“You can take deductions for all the properties you own, plus add your state income tax,” says Steven Weil, president of RMS Accounting, in Fort Lauderdale, FL. Property tax rates vary nationally from 0.28% to 2.38%, so for that $300,000 house you bought, you’d be deducting between $840 (in Hawaii) and $7,140 (in New Jersey).
Changes for 2018: Next year, there’s a $10,000 cap on the combined amount of your property taxes, state and local income taxes, and (for states without income tax) deductible sales tax.
Did you add solar panels or solar-powered water heaters last year? That means you can help yourself to a tax credit.
According to Bishop L. Toups, a taxation attorney in Venice, FL, qualifying solar electric panels and solar water heaters are good for a credit of 30% of the cost of the equipment and installation. For a $30,000 green investment, that’s a cool $9,000 back!
To qualify, the solar panels have to generate at least half of the energy used by the home, they have to be installed in your primary residence, and they can’t be used to heat a pool or hot tub (sorry to kill your solar hot tub dreams).
Changes for 2018: The credit will vary based on when it’s installed: It will remain 30% of the cost for equipment installed between now until the end of 2019, 26% until the end of 2020, and 22% until the end of 2021.
W-2 employees, this is your last year to grab this one, says Joshua Hanover, a senior manager at Marks Paneth.
Using the simplified home office deduction, you can take $5 for every square foot of office, up to a maximum of 300 square feet. For a 200-square-foot home office, you’re looking at a nice $1,000 deduction. Just don’t try any funny stuff—it has to be a dedicated home office, used only for work. Here’s more on the home office tax deduction
Changes for 2018: Next year, the home office tax deduction disappears for all W-2 employees who have an office elsewhere they could use if they wanted to. The only people who can continue this deduction are those who truly run their own business from home.
Original article can be found at: www.realtor.com/advice/finance/your-home-tax-deduction-checklist