Tax time is almost upon us again, and it’s time to take stock of how we’re doing financially (The IRS won’t begin accepting or processing tax returns until February 12, 2021, the filing deadline is still April 15, 2021). The more things change, the more they stay the same; land ownership is a prerequisite to wealth. Today, we will discuss the various tax benefits associated with being part of the landed gentry. The Tax Cuts and Jobs Act (”TCJA”) went into effect on January 1, 2018 and increased the tax benefits of home ownership in a significant way.
First, you can deduct up to $10,000 in property taxes. Second, you can deduct interest on Private Mortgage Insurance (“PMI”). Some people simply do not have 20% for a down payment and need to turn to PMI to cover the difference (the PMI ranges from .3% to 1.15% of your home’s value). Third, you can deduct interest on your mortgage itself; though when you acquired the mortgage determines how much you can deduct. If you obtained your mortgage before December 15, 2017, you can deduct interest on loans of no more than $1M. If you obtained your mortgage after December 15, 2017, you are capped at $750k.
While tax deductions based on how much you spent purchasing the home are nice, you can also make deductions for investments you made in your home. Of particular relevance in these trying times, you can deduct up to $1,500 for a home office. While the rules are very strict about what constitutes a home office, you’re in luck if you meet the requirements (If you’re a W-2 employee, your home office is not deductible, regardless of the fact that you worked from home all year). Next, investments into energy efficient households can be treated as tax credits (at least until December 31, 2021). If you invested in solar electric or solar water-heating equipment, you may receive a tax credit (if you installed the upgrade in 2020, you can claim 26% of that cost as a credit; if you installed the upgrade in 2021, you can claim 22% of that cost as credit).
Finally, if you’re of the Boomer variety and intend to age in place, you can deduct the cost of aging-in-place-related improvements as soon as the cost exceeds 7.5% of your adjusted gross income (“AGI”). Thus, if your AGI is $100,000, and you spend $10,000 making your home wheelchair accessible, you can deduct $2,500 from your taxes (you’ll need a note from your doctor that the improvement was necessary).
At the Chernov Team we understand that knowledge is power, and knowledge of the tax benefits associated with home ownership is powerful knowledge indeed. At the Chernov Team we know that whoever comes to the table most prepared leaves with the most, and the Chernov Team always leaves the table with the most.