2021 BOISE IDAHO REAL ESTATE BLOG
Tax Season: 7 Tax Benefits of Owning a Home Main Treasure Valley Life

It’s everybody’s favorite time of the year: Tax Season. As it comes time to file your taxes for 2020, you can strongly leverage your homeownership on your taxes with many write-offs. Here is a list of 7 tax benefits that homeowners can claim.

One important point to note before we get started. This checklist is based on publicly available information. Speak to a licensed tax professional or certified financial planner about the details of these tax benefits and if/how they apply to your personal situation.

As a homeowner, there are many tangible, intangible, and financial benefits you receive just by owning a home. There are many ways for homeowners to save hundreds or even thousands of dollars every year on their taxes. Many of these got expanded or extended by the Tax Cuts and Jobs Act that went into effect on January 1, 2018.  We will try to make this checklist as non-boring and succinct as possible.

Mortgage interest

Mortgage interest is one of the biggest write-offs a homeowner can make every year. Homeowners with a mortgage that went into effect before December 15, 2017, can deduct up to $1 million in loan interest. For loans originated after December 15, 2017, homeowners can deduct up to $750,000. Regardless of when your loan originated, the more recent your loan is, the more money you can write off your taxes.

It is important to note that mortgage interest deduction is an itemized deduction. For it to work in your favor, all of your itemized deductions must be more than the new standard deduction of $12,400 for individuals or $24,800 for married filing jointly, plus $1,300 for each spouse over 65.

Home equity line of credit interest

If you have a home equity line of credit (HELOC) that is used specifically to “buy, build, or improve a property”, you can deduct the interest on the loan. You’ll save money on renovating the master bath or giving your kitchen a facelift. You can deduct your HELOC interest up to the maximum mortgage interest deduction ($1 million or $750,000. See above.) since they combine.

Property taxes

Property tax deduction is capped at $10,000 for married couples filing jointly. This is another itemized deduction, so speak to a certified financial expert about whether this is worth your while to itemize. Here is a link to Idaho property tax information.

Private mortgage insurance (PMI)

If your down payment was less than 20%, you are likely paying private mortgage insurance (PMI) in addition to your monthly mortgage payments. PMI is typically 0.3%-1.15% of the total home loan amount. Luckily, you can deduct the interest on this insurance thanks to the SECURE Act of 2019. As of publishing this article on Feb 24, 2021, this act will expire in 2021. So you can still file for this deduction on your 2020 taxes, but not your 2021 taxes (unless it gets renewed by Congress). This is also an itemized deduction.

Energy efficiency upgrades

The Residential Energy Efficient Property Credit is a tax incentive for installing energy-efficient and alternative energy upgrades for your home. Most of the tax credits under this act expired at the end of December 2016, but some remain. Credits for installing solar eclectic and solar water heaters are available for deduction through December 31, 2021. Plus, the SECURE Act retroactively instated a deduction for installing energy-efficient upgrades to your home “such as exterior windows, doors, and insulation”.

Luckily, this is a tax credit, so there is no itemizing needed! However, the amount of credit varies based on when the installation took place. For equipment installed between Jan. 1, 2020, and Dec. 31, 2020, 26% of the installation cost is eligible for the credit (down from 30% in 2019). That figure drops to 22% for installation between Jan. 1 and Dec. 31, 2021. As of now, the credit ends entirely after 2021.

Home office deduction

For self-employed people and contract workers whose home office is their primary workplace, you can deduct $5 per square foot of office space (up to 300 square feet for a total deduction of $1,500). Keep in mind that there are strict rules for what constitutes a fully dedicated, fully deductible office space. More information is available here (this page was most recently updated on December 22, 2020). This is an itemized deduction.

However, if you are a W-2 employee forced to work from home due to COVID-19, you are unable to claim a home office deduction under the CARES Act—even if you spent most of 2020 working from home.

Age-in-place upgrades

Many older homeowners who plan to stay in their homes through their old age are allowed to make improvements to the house to accommodate their needs. For this tax break, home improvements such as wheelchair ramps, stair elevators, bathroom grab bars, doorway widening, cabinet and light fixture adjustments, and others will need to exceed 7.5% of your adjusted gross income. For example, if you make $65,000 per year, the deduction will apply to costs over $4,875. To qualify, you will need a letter from your doctor proving that these changes are medically necessary. 

 
Posted by AndrewS at 2/25/2021 1:34:00 AM
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