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Tax Benefits for Homeowners

Posted 02/28/2020

When tax season rolls around, homeowner is a status that can come with major tax benefits. As you prepare your returns for the 2019 year, be sure you aren’t missing out on some serious tax deductions and credits for being a homeowner.

two new homeowners holding keys

Mortgage Interest Deduction

As of the Tax Cuts and Jobs Act of 2017 (TCJA), couples filing jointly who itemize can deduct mortgage interest on up to $750,000 of mortgage debt. Single filers can deduct interest on up to $375,000. This deduction applies to loans obtained for the purchase or improvement of a first or second home.

This number only applies to mortgage debt incurred after December 14, 2017 – debt incurred before this time is subject to the old rules, which allowed mortgage interest deductions on qualified debt up to $1 million for couples filing jointly and $500,000 for those filing separately.

Points and Closing Costs Deduction

If you paid for points when purchasing a new home or refinanced in the last year, those mortgage points are generally tax-deductible. Because mortgage interest is tax-deductible, loan discount points may be too.

Property Tax Deduction

Property taxes are a deductible expense. Keep in mind, however, that the TCJA puts a $10,000 cap on the amount of state and local taxes that can be deducted. If you are taking deductions elsewhere, you may not be able to deduct the full amount of your property taxes.

Capital Gains Tax Exclusion

homeowner counting money for taxes

Long-term capital gains are usually taxed at a variable rate that depends on your income bracket and filing status. The rules are slightly different for capital gains from home sales, though.

If you made a profit from the sale of a home, you can exclude up to $500,000 for joint filers and up to $250,000 for single filers IF certain conditions are met. These conditions include: passing an ownership and usage test, you must have lived in the home as your main residence for at least two of the last five years, and you cannot have claimed the capital gains exclusion for the sale of a different home in the last two years.

Clean Energy Upgrades Credit

If you have made clean energy upgrades to your home in the last year, you may be able to deduct some of those expenses on your tax return.

The federal solar tax credit lets homeowners deduct 30% of the installation cost of a solar energy system, and there is no cap to this credit.

This credit will decrease over time. Upgrades made in 2020 will only be eligible for a 26% credit, those in 2021 get 22%, and 2022 and beyond get 10%. If you’re thinking about upgrading to a solar energy system and want to take advantage of this credit, sooner is better than later.

Medical Expenses Deduction

If you have made medically necessary upgrades to your home, these improvements are considered part of your deductible medical expenses.

Home Office Deduction

Last but not least, if your home is also your main business location, you may be able to deduct some home office expenses. You may only take this deduction if your home office’s sole purpose is to be a home office. Space that doubles as an office and a spare bedroom would be ineligible.

If you are in the market to obtain the coveted title of homeowner, browse Seabrook Island Real Estate’s available listings and reach out to one of our agents to learn more.

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