At Security First Financial, we believe in educating our customers so they can make the best financial decisions for their circumstances. With the new tax laws (Tax Cuts and Jobs Act (TCJA) passed last year, there have been many head-scratching questions on what a homeowner can deduct on their 2018 return when the taxman cometh on April 15. Here are a few things to keep in mind when preparing your tax filing.
According to Turbo Tax, the following may be eligible for a tax deduction for homeowners:
Property taxes: If you purchased a home, include any taxes you may have reimbursed the seller for (the amount will be on the settlement statement)
Mortgage interest on your primary residence and/or second residence
Interest up to $100,000 borrowed on a home equity loan or home equity line of credit
Points paid when you purchased the home
Mortgage insurance premiums (only policies issued after 2006)
Home improvements required for medical care (e.g., wheelchair ramp)
What you cannot deduct are dues paid to a homeowner’s association, insurance on your home, appraisal fees for your home, or the cost of improvements to your home.
MarketWatch notes that if you have a big property tax bill, you can deduct the entire amount if you itemize (1040 long form). However, you need to ask yourself this question: to itemize or not to itemize?
The standard deduction, for those who do not itemize, increased to $12,000 in 2018 vs. $6,350 in 2017 for a single filer; $24,000 for married-joint filing vs. $12,700 in 2017.
There are some instances where getting professional tax help would be a big benefit to filing your return, especially if you pay high property taxes, own an expensive home or own both a primary residence and one or more additional homes. If you fit into any of these categories, you can:
Deduct $10,000 or more if you own a home that is used partially for business or partially rented out
Decide how you want to deduct the $10,000 if you pay both state and property taxes and state and local income taxes (or sales tax)
So if your head hasn’t exploded by now, whew, there’s some good news: the new TCJA allows you to potentially exclude from federal income tax up to $250,000 from a qualified home sale or $500,000 from a sale if you are a married joint-filer.
Security First Financial encourages you to consult with a tax professional to ensure you are filing your taxes within the parameters of the law. And if this is the year you plan on purchasing a home, please contact one of our qualified representatives to help guide you down the right homeownership path for you.