Homeowners might be wondering right about now what the tax benefits are of owning a home. You might also be wondering how the new tax plan might affect tax perks of homeownership when you file next year.
Tax Break 1: Mortgage Interest
This continues to be the biggest benefit of owning a home for the 2017 tax year. This is the ability to deduct the interest on a mortgage of up to $1 million. The new tax bill allows homeowners with a mortgage that went into effect after Dec. 15, 2017 to continue to deduct interest on a mortgage of up to $750,000 and that’s a combined total for the first, second, and any other homes.
Tax Break 2: Property Taxes
In most instances, property taxes are deductible on your 2017 tax return and that could spell hefty savings. According to the U.S. Census Bureau, the average household property tax is $2,127. If you have a mortgage, your taxes are built into your monthly payment. Next year, the property tax will no longer be a separate deduction. Instead, taxpayers can take one deduction that includes property tax as well as state and local sales and income taxes. That deduction is capped at $10,000 for those married filing jointly.
Tax Break 3: Private Mortgage Insurance
If you put less than 20% down on your home, then you are probably paying private mortgage insurance which costs from 0.3% to 1.15% of your home loan. While the deduction had expired, the new tax bill retroactively made the deduction available for the 2017 tax year. Next year, this deduction is for itemizers only. Plus, the 2018 tax law nearly doubles the standard deduction. As a result, it is estimated that only about 5% of the taxpayer will itemize deductions in 2018.
Tax Break 4: Energy-Efficient Upgrades
The Residential Energy Property Credit was a tax incentive for installing alternative energy upgrades in a home. Most of these tax credits expired after December 2016. However, two credits are still available. The credits for solar water heating equipment are available through Dec. 31, 2021. The percentage of the credit varies based on the date of installation, next year. For equipment installed between Jan. 1, 2017 and Dec. 31, 2019, 30% of the expenditures are eligible for the credit. That goes down to 26% for installation between Jan1 and Dec. 31, 2020, and then to 22% for equipment put in between Jan. 1 and Dec. 31, 2021.
Tax Break 5: Home Office
If you work from home, your office space and expenses can be deducted. You can take a $5-per-square-foot deduction for up to 300 square feet of office space, which amounts to a maximum deduction of $1,500. However, there are strict rules on what constitutes a dedicated, fully deductible home office space. Next year, this deduction will be eliminated for employees who have an office to go to but work from home occasionally, but it remains for all self-employed people whose home office is the main place they work.
Tax Break 6: Home Improvements to Age in Place
Many older homeowners plan to age in place and, if that entails renovations such as wheelchair ramps or grab bars in bathrooms, the cost of these improvements results in a nice tax break. Deductible improvements might also include widening doorways, lower cabinets or electrical fixtures, and adding chairlifts.
Tax Break 7: Interest on a Home Equity Line of Credit
If you took out a home equity line of credit in 2017 or earlier, the interest you pay on that loan is also deductible. People use these loans to do all sorts of things like pay for college, have a wedding, or make home improvements to their home. How much you’ll save depends on the amount borrowed. The new tax law eliminates this tax deduction unless that HELOC is used specifically to “buy, build, or improve a property,” according to the IRS. That’s bad news for homeowners hoping to pay off college tuition, but still good for homes that need a kitchen overhaul.