The tax filings for this upcoming April marks the first year that the new tax laws via the Jobs Act go into effect. Much discussion and anticipation are taking place about whether this will result in a bigger refund compared to previous years. While many factors affect your tax rate and rebate, one thing you can control is proper preparation in advance for a smoother filing and (hopefully) a faster refund.
While many people are busy preparing for the upcoming Purim and Pesach holidays, I thought it would be worthwhile to help remind homeowners of some popular tax categories to consider in advance of meeting with your accountant next month. Of course, a conversation with your personal and competent certified public accountant will help best determine which of these tax categories apply to your circumstances, and in what capacity.
Mortgage Interest Deduction
If you took out your mortgage after Dec. 15, 2017, the interest you pay on your first or second mortgage is generally tax deductible on home loans up to $750,000 (or $375,000 if married filing separately). For mortgages taken out on or before Dec. 15, 2017, the deduction applies to home loans up to $1 million (or $500,000 if married filing separately). If you took out a home equity loan or line of credit, the interest is only tax deductible if the loan was used to buy, build, or substantially improve the home that secures the loan. Exceptions, limitations, and restrictions apply, so talk to your tax advisor to see if you’re eligible for the mortgage interest deduction.
Mortgage Interest Credit
A mortgage interest credit of up to $2,000 on mortgage interest paid in a calendar year, is available for qualified low- to moderate-income homeowners. Eligible taxpayers must obtain a Mortgage Credit Certificate (MCC) before purchasing their home. The MCC must be issued by a state or local governmental unit or agency under a qualified mortgage credit certificate program.
Mortgage Discount Points Deduction
Mortgage Discount Points are something a home buyer can utilize to lower your interest rate when you buy your home; one point is typically equal to 1% of the loan amount. If you purchased discount points when you bought your home, you might be able to deduct them on your income tax return. Of course, the IRS has eligibility requirements for deducting points, so talk to your tax advisor to see if you qualify for this deduction.
Property Tax Deduction
One of the more significant changes with the new tax laws is as it relates to the deductibility of property taxes. State and local property taxes that you pay for any real estate you own are deductible up to $10,000 (or $5,000 if married, filing separately). Keep in mind the deduction limit is applied to your overall property tax payments, even if you own more than one property. For instance, if you own two or more properties and your total combined property tax bill was $15,000, you will only be allowed to deduct $10,000 total from your income taxes.
Capital Gains Tax Exemption
If you sell certain types of assets for more than their original cost, you may have a capital gain. Capital gains are generally taxable. However, an exception is made if you sell your home for more than the amount you paid (in other words, if you make a profit). The capital gains you get from selling your home are tax-free up to $250,000 (or $500,000 if married filing jointly). The caveat is that you must have lived in that property as your primary residence for two out of the past five years. This tax perk helps you keep more of the equity that you worked to build over the years — yet another example of just how powerful ownership and equity can be for growing your wealth.
Being a homeowner comes with some very lucrative advantages - and tax breaks are one of the benefits of such an endeavor. Again, the recommendation is to talk to your tax advisor to learn more about how you can max out your tax savings and get the most from your real estate investment.
By Shmuel Shayowitz