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Tax Benefits for Homeowners

Tax Benefits for Homeowners

BUYING A HOME IS NO small decision, and the potential tax benefits are only one of many factors to consider when making your choice. That said, for homeowners who qualify, Uncle Sam provides some tempting tax benefits and tax deductions.

Here’s an important caveat to note: The Tax Cuts and Jobs Act, which took effect in December 2017, changed and limited some of the benefits available to homeowners. An increase in the standard deduction and new limitations on itemized deductions make it less likely that you’ll utilize all or any of these tax benefits.
Tax returns that included a Schedule A, which applies to deductions like home mortgage interest, made up just 10.1% of total returns in 2018, a reduction from nearly 30% the previous year, according to analysis of IRS data by Juan Montes, enrolled agent with TheTaxProblem.com, a firm with offices in Ceres and San Jose, California.
“Far more people are taking the standard deduction now because it’s so much greater than it used to be,” says Logan Allec, a certified public accountant and creator of the finance website Money Done Right. The 2019 standard deduction amounts are:
  • Single or married filing separately: $12,200.
  • Married filing jointly: $24,400.
  • Head of household: $18,350.
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Want to learn more about the tax benefits for homeowners? Here are tax benefits homeowners may be able to use:
  • Mortgage interest deduction.
  • State and local tax deduction.
  • Tax-free profits on qualified home sales up to $500,000.
  • Penalty-free IRA withdrawals.

Mortgage Interest Deduction

Taxpayers who itemize on their returns can deduct home mortgage interest on the first $750,000 of debt ($375,000 if married filing separately). That’s a decrease from the pre-tax-reform maximum of $1 million ($500,000 if married filing separately). If you purchased your home before Dec. 16, 2017, however, you can still use those higher limitations.
It’s important to note that you must itemize on your Schedule A instead of taking the standard deduction to take advantage of this homeowner tax deduction, so this is not available to every taxpayer.
Interest on up to $100,000 of a home equity line of credit, which is debt secured by your home, is only now deductible if you use it to build or improve your property. The new law also causes the loan amount to apply toward your maximum deduction instead of being in addition to that limit. “Before, it was $1 million, plus $100,000,” Allec says. “Now, if you have a $750,000 mortgage, and you get a home equity line of credit, it’s part of the limitation.”

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State and Local Tax Deduction

Certain state or local taxes based on the value of your property are deductible on your federal tax return. Under tax reform, filers are limited to deducting up to $10,000 in state and local taxes ($5,000 if married filing separately).
That new limit, coupled with the higher standard deduction, makes this deduction less beneficial to many filers. But if you are itemizing this year and are a homeowner, it’s worth doing the math.
One strategy for some taxpayers is to convert part of their house to business use, Allec says. For example, you could claim a home office deduction if you’re self-employed. Now, property taxes allocated to that portion of your home may be deductible as a business expense on your Schedule C. Make sure to visit a tax professional if you’re looking to do any complex tax planning.

Tax-Free Profits on Qualified Home Sales

This tax benefit for homeowners is largely unchanged under tax reform. It allows homeowners who have lived in their homes for two of the previous five years to collect tax-free profits on the sale of their home up to $500,000 for married couples ($250,000 for single folks).
There are some exceptions and complexities to this rule. For example, if you don’t meet the two-of-five-years requirement but are moving for an unforeseen circumstance such as a job change, you may be able to still claim a prorated portion of your earnings tax-free…Read more>>
Source:-money
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