Every time tax season rolls around, everyone always wonders how they can get the most money back on their return. Luckily, if you own a home, there are a few things that can help you save major money! Read up on this complete guide to all the tax benefits of owning in a home in the year 2017 and 2018.
Tax Break 1: Mortgage Interest
Many new home buyers are soaking this one up. The benefit of owning a home for tax year 2017 gives you the ability to deduct the interest on a mortgage of up to $1 million. The more recent your mortgage, the greater your tax savings which definitely makes a lot of homeowners happy.
According to realtor.com, a married couple in the 28% tax bracket (joint annual income between $151,201 and $230,450), who buys a home with a $300,000, 30-year mortgage at a 4% interest rate, will pay $11,904 in interest their very first year. After adding in the other itemized federal deductions, they can expect to be saving at least $3,333 in taxes during the first year of ownership.
Next year, the new tax bill is going to allow homeowners with a mortgage that went into effect before December 15, 2017, to continue to deduct interest loans that are up to $1 million.Anyone who closed on a mortgage after December 15,2017, the cap for deducting interest becomes $750,000. That's a combined total for their first home, second, and any other homes.
Tax Break 2: Property taxes
According to Brian Ashcraft, director of compliance at Liberty Tax Service, in most cases, property taxes are deductible on your 2017 tax return. This means you'll have way more money in your pocket to save. The average household property tax is $2,127. With a mortgage, taxes are built into each monthly payment.
Next year, property taxes will not be a separate deduction. Instead, taxpayers can take one deduction that includes property tax as well as state and local sales and income taxes, and that one deduction is capped at $10,000 for those married filing jointly.
Tax Break 3: Private mortgage insurance
For those of you that put less that 20% down on your home, odds are you're paying private mortgage insurance, otherwise known as PMI. That usually costs anywhere from 0.3% to 1.15% of your home loan. While the deduction expired in the past, the new tax bill made the deduction available for the 2017 tax year.
For example, if you make $100,000 and put down 5% on a $200,000 house, you'll pay about $1,500 in annual PMI premiums and this will cut your taxable income by $1,500!
Tax Break 4: Energy-efficiency upgrades
There used to be a list of tax credits for installing alternative energy upgrades in a home. Most expired in December 2016, but two stuck around. The credits for solar electric and solar water heating equipment are available all the way through Dec. 31, 2021, says Josh Zimmelman, owner of Westwood Tax & Consulting, a New York- based accounting firm.
Next year, The percentage of the credit of each varies depending on when you installed it. Equipment that was installed between January 1 2017, and December 31 2019, will have 30% of expenditures eligible for credit.
Tax Break 5: Home Office
For those of you who work from home, your office space and expenses that go towards your job can be deducted as well. Vincenzo Villamena, managing partner of Online Taxman, says you can take a $5-per-square-foot deduction for up to 300 square feet of office space, which could potentially add up to a maximum $1,500 deduction. There are strict rules on what constitues a fully deductible home office, so you may need to do a little more research or contact a tax return specialist.
Next year, this deduction will not be offered to employees who have an office to go to but work from home occasionally. It does, however, remain for all self-employed people whose home office is the main place they work.
Tax Break 6: Home improvements
Older homeowners typically plan to stay in their current home for the rest of their lives, known as aging in place. If that entails wheelchair ramps, grab bars in bathrooms, wider doorways, or stair lifts, that can result in a pretty favorable tax break.
Of course, you can't just claim that the person absolutely needed these improvements in their home so you will need a letter from your doctor stating that these changes were medically necessary. Also, in 2017, these home improvements need to exceed 7.5% of your adjusted gross income. For example, if you make $50,000, you can only get the deduction if you spent over $3,750. This rule stands the same for the 2018 year.
Tax Break 7: Interest on home equity line of credit
The interest you pay on a home equity line of credit, or HELOC, is also deductible. People use these loans for a variety of things, including paying for college, a wedding, or for improvements on their homes.
Usually, however much you will save depends on the amount borrowed. Example: If you take out a four-year, $200,000 HELOC at 4% interest, you'll have an $800 deductible that will save you about $205 in the first year of your loan. Joint-filing taxpayers could deduct up to $100,000 ($50,000 for individuals) in interest paid on home equity debt.
Next year, the new tax law eliminates this tax deduction unless the loan is used specifically for buying, building, or improving a property. That is unfortunate for those trying to pay off college tuition but will pay off for those whose homes are screaming for an upgrade.
Thanks for reading!