Many homeowners are wondering how the new tax code will affect their family’s taxes next year. While everyone’s situation is different, there are a few tax benefits that all homeowners should know about. Talk to a tax professional to find out which of these tax benefits you should plan to take advantage of this year.
Tax Benefit #1: Mortgage Interest
For those of you that itemize your deductions, you will be pleased to learn that your mortgage interest is tax deductible. The new tax code is set to increase the standard deduction, making it $12,000 for individuals and $24,000 for married couples filing jointly. This increased standard deduction means that fewer people will itemize their deductions going forward. It only makes sense to itemize your taxes if you think that you're below the line deductions will add up to be greater than the standard deduction.
However, if you have a decent sized mortgage, your interest payments may be high enough that you should plan to itemize your taxes. Mortgage interest on all mortgages of less than $750,000 is completely tax deductible. Before filing your taxes, check and see if you're below the line deductions, including charitable donations and your mortgage interest, will add up to be greater than your standard deduction.
Tax Benefit #2: Property Taxes
While property taxes might not seem like a tax benefit, this is another tax deductible housing expense. While this was previously an uncapped deduction, beginning in 2018 this tax deduction will be capped at $10,000 per year for state and local property taxes. This change in the tax code should not affect most families, but those living in high tax states such as New York and California should be aware of this change.
Tax Benefit #3: No Capital Gains
If you purchased property in a thriving market, your home has probably appreciated since you purchased it. Homeowners will be happy to learn that they will not have to pay capital gains taxes if they later sell their home at a profit. Single people can make a profit of up to $250,000 without paying capital gains taxes. This deduction doubles to $500,000 for married couples filing jointly.
Tax Benefit #4: Home Office Deductions
Deducting a portion of your housing expenses for a home office can be a great way for self-employed workers to save some money, but you will need to make sure that you have a paper trail proving the validity of this expense. A tax-deductible home office must only be used for business purposes. It can not double as a guest bedroom or family room. Note: because so many people abuse this deduction, it can sometimes trigger an audit. This should not stop you from taking this deduction if you work from home, but if you are planning to deduct part of your housing expenses for a home office, be sure you have your records in order.
If you are looking to buy and want to learn more about the possible tax benefits of purchasing a home, contact me today!