The past couple of years has seen some changes when it comes to your home and taxes. Now you can no longer claim mortgage interest deduction or write off your property taxes. Here are the rules that homeowners need to follow when it comes to their home and taxes.
Standard Deduction
Standard deductions have risen since the tax law changes in 2017. A standard deduction is the amount that you get to claim with or without deductions. This year the amount has gone up even more. Married can claim $25,900, head of household $18,000 and $12,950 for singles.
This means now the standard deduction is actually more than many homeowners’ write-offs. “This doesn’t necessarily mean that those who no longer itemize will pay more taxes,” says Evan Liddiard, a CPA and director of federal tax policy for the National Association of REALTORS® in Washington, D.C. “It just means that they’ll no longer get a tax incentive for buying or owning a home.”
Personal Exemption
There is no longer a personal exemption which is a damper. What does this mean? A homeowner can no longer exempt $4,150 for each member of your household from your income. If you are a single filer or a married couple without children, you will still come out ahead. This is not the case for those with families with two or more dependent children 16 or older. In the past, families with dependents under 17 years old were given an additional $1,000.
Mortgage Interest Deduction
Currently, you can write off mortgage interest for a loan amount of $750,000 or less. If your loan was obtained on December 15, 2017, or before, you can still write off mortgage interest on loans up to $1 million.
Depending on what part of the country you live in, this will not affect most homeowners. Those living in places like San Francisco will feel the difference since the median home price is above a million.
State and Local Tax Deduction
The rule for this is that homeowners cannot deduct over $10,000 for all state and local taxes combined. This really puts a damper on those that live in high tax areas. This affects a lot of homeowners in the United States because homeowners in 20 states write off more than $10,000.
“This is going to hurt people in high-tax areas like New York and California,” says Lisa Greene-Lewis, CPA and expert for TurboTax in California. Typical New Yorkers, for example, were taking SALT deductions around $22,000 a household.
Rental Property Deduction
In short, there is no limit for landlords. So they can write off mortgage debt interest or state and local taxes on rentals. If you are a landlord, you can also write off operating expenses such as insurance, lawn care, and utilities.
Home Equity Loans
Interest on these loans can be written off but only if the proceeds were used to better your home. Remember there is a $750,000 cap so you will need to make sure the total does not exceed this amount.
Mortgage Debt Forgiveness and Mortgage Insurance Premiums
These two deductions have been enacted again. If you sold your primary residence short and had part of your mortgage debt forgiven by the lender, you don’t have to pay tax on the amount of debt discharged, at least through the end of 2025.
Just remember, single people may not get more tax benefits from purchasing a home. Also, student loan debt is deductible for up to $2,500 if you are repaying also itemizable charitable deductions and medical expenses can be deducted. Remember to check with a tax professional to make sure your amount and items are correct.
