As a homeowner you are probably asking yourself what mortgage interest and tax deductions are available to you and your family. As a homeowner you are afforded advantages when tax season rolls around because your home can provide a wealth of tax deductions. But while many homeowners will see the same tax benefits in 2018 that they have in the past, the new tax law has changed available mortgage tax breaks.<\/p>\n\n\n\n
Whether you\u2019re a first-time homebuyer<\/a>, a renter looking to make a purchase<\/a>, or a happy homeowner, you\u2019ll want to familiarize yourself with how your mortgage will affect your finances. So, before you take out a mortgage or equity loan, refinance your home, sell your home, or file your taxes, be sure you\u2019re aware of these tax implications.<\/p>\n\n\n\n How Does the Tax Cuts And Jobs Act (TCJA) Affect My Tax Bill?<\/p>\n\n\n\n Starting in 2019, homeowners will see the impact of the TCJA on their federal taxes. While most of those changes limit or completely remove items you used to deduct, not everyone will see a difference on their returns. But if you have an expensive home, particularly in an area with higher property taxes, you could find yourself with a bigger tax bill.<\/p>\n\n\n\n These are the changes that are most likely to affect homeowners.<\/p>\n\n\n\n The standard deduction is higher<\/b><\/p>\n\n\n\n The standard deduction has nearly doubled, so it may be more appealing to skip itemizing deductions and simply take the standardized deduction instead. While that isn\u2019t necessarily a bad thing (it\u2019s possible it could lower your tax burden), it would mean you couldn\u2019t take any of the deductions related to being a homeowner.<\/p>\n\n\n\n These are the new standard deduction amounts by filing status:<\/p>\n\n\n\n Mortgage interest deductions are capped<\/b><\/p>\n\n\n\n For homes purchased after 12\/15\/17, you can only deduct mortgage interest on debt up to $750,000 (or $375,000 if you\u2019re married filing separately). If you purchased your home before that date, the earlier rules still apply and you can deduct interest on debt up to $1 million (or $500,000 if you\u2019re married filing separately). However, these new limits don\u2019t affect refinances, as long as the new loan principal isn\u2019t higher than your original loan.<\/p>\n\n\n\n But if you don\u2019t have a large mortgage, this change won\u2019t affect you at all.<\/p>\n\n\n\n Property tax deductions are capped<\/b><\/p>\n\n\n\n Previously, you could deduct all of your state and local taxes \u2014 including property taxes \u2014 from your federal tax return. For filing taxes from 2018, you\u2019re limited to deducting just $10,000 (or $5,000 if married filing separately).<\/p>\n\n\n\n While this change affects many filers, homeowners are most likely to see it in their property tax deductions.<\/p>\n\n\n\n You can\u2019t always deduct moving expenses<\/b><\/p>\n\n\n\n You used to be able to deduct expenses for moving if you had to move for a job, but the deduction has been removed except for active-duty military members. Also bear in mind that if you move and are reimbursed for expenses by your employer, that reimbursement will be considered taxable income \u2014 again, with exceptions for military members.<\/p>\n\n\n\n You can\u2019t always deduct interest on home equity loans<\/b><\/p>\n\n\n\n Home equity loans and home equity lines of credit have long been an excellent way to get cash by tapping into the equity on your home. These loans were especially appealing because you could deduct the interest you paid, which meant you could take a vacation, pay your child\u2019s college tuition, or fund a dream wedding at a very low cost.<\/p>\n\n\n\n But starting in 2019 you can only deduct interest on a home equity loan if it\u2019s used to pay for home improvement. Home equity loans and lines of credit are still good ways to borrow \u2014 they typically have lower interest rates than other loans \u2014 but they won\u2019t include a tax break unless you\u2019re putting the money back in the home.<\/p>\n\n\n\n You can\u2019t deduct private mortgage insurance<\/b><\/p>\n\n\n\n If you didn\u2019t make a down payment of at least 20%, most types of mortgages \u2014 excluding VA loans \u2014 require you to pay private mortgage insurance (PMI). Costs vary, but you can expect PMI to run from 0.5% to 1% of the original loan amount annually, which can add up.<\/p>\n\n\n\n Previously, you could deduct this expense from your taxes. While this wasn\u2019t specifically cut by the TCJA, the PMI insurance deduction expired at the end of 2017 and was not renewed by the new tax bill. It\u2019s a loss that\u2019s most likely to hit first-time homebuyers, who may find it difficult to save up 20%. If you\u2019re thinking of buying, this is a good reason to save up your 20% first, or get a VA loan which doesn\u2019t require PMI.<\/p>\n\n\n\n What About the First-Time Homebuyer Tax Credit?<\/p>\n\n\n\n The first-time homebuyer credit was available in 2008, 2009, and 2010, offering qualified first-time buyers tax credits of up to $8,000. However, this wasn\u2019t just free money: it needs to be repaid over 15 years by filing Form 540<\/a>5<\/a>.<\/p>\n\n\n\n The credit has now expired, but if you did purchase your first home in 2008, 2009, or 2010 you may still be able to claim it. Requirements vary depending on when exactly you purchased your home, so if you think you qualify, it\u2019s best to contact a tax professional.<\/p>\n\n\n\n How to Claim the Home Mortgage Interest Deduction<\/p>\n\n\n\n You can deduct mortgage interest paid on qualified home for loans up to $1 million (or $500,000 if married filing separately) for loans taken out before 2018, or up to $750,000 (or $375,000 if married filing separately) for loans taken out in 2018 and beyond. You can also deduct interest for a home equity loan or home equity line of credit if you used the money to improve your home. If the combined amount of your mortgage and equity loan exceeds those amounts, you can deduct part, but not all, of your interest payments.<\/p>\n\n\n\n To make these interest deductions, you\u2019ll need to itemize deductions on Form 1040, Schedule <\/a>A<\/a>. Your lender should have sent you a mortgage interest statement (Form 109<\/a>8<\/a>) with the information on what you paid to help you get the correct amount. If not, contact your lender to find out how much interest you paid.<\/p>\n\n\n\n If you itemize deductions, you\u2019ll be able to take advantage of this and other homeowner tax deductions \u2014 like property taxes \u2014 but you won\u2019t be able to take the standard deduction. Because the standard deduction has been increased this year, you may want to do the math to see whether taking advantage of the home mortgage interest deduction is better than taking the standard deduction.<\/p>\n\n\n\n What Other Home Deductions Can Be Claimed?<\/p>\n\n\n\n While these deductions aren\u2019t usually as large as those we\u2019ve already mentioned, there are a few more deductions you may be able to claim:<\/p>\n\n\n\n You should be aware that one popular deduction is gone, however. Starting in the 2018 tax year, you can no longer deduct the cost of private mortgage insurance. However, this could change because Congress is currently considering a bill \u2014 H.R.28<\/a>4<\/a>\u2014 that would extend the deduction. It hasn\u2019t passed yet, but if it does become law, you may be able to claim this deduction retroactively.<\/p>\n\n\n\n What Tax Forms and Documents Will I Need?<\/p>\n\n\n\n In addition to the standard tax paperwork, homeowners will also need:<\/p>\n\n\n\n You\u2019ll want to keep all of this paperwork to prove your deductions are legitimate in case you\u2019re audited. The IRS may audit a return for up to three years afterwards, and up to six years afterwards in case of a large discrepancy (25% or more of gross income). Thus, you should keep all federal tax paperwork for at least six years.<\/p>\n\n\n\n While these documents may not be needed for this tax year, you should also keep these:<\/p>\n\n\n\n What Is a Property Tax Assessment and How Can I Appeal It?<\/p>\n\n\n\n Once a year, your local tax assessor will appraise the value of your home to determine your property taxes. If the appraised value is higher than the previous year, you\u2019ll pay more in property taxes. While you used to be able to deduct property taxes off your federal taxes, now you can only deduct state and local taxes \u2014 which includes property taxes \u2014 up to $10,000 (or $5,000 for married filing separately).<\/p>\n\n\n\n Though this change may not impact your federal tax return, if your home\u2019s appraised value has gone up by a significant amount, you might consider appealing it. Get started by comparing your home\u2019s assessed value to the sales price of similar homes in your area. To research pricing, you can search online real estate search sites, contact a local real estate agent (though they may not be willing to do it for free), or contact your local tax assessor\u2019s office.<\/p>\n\n\n\n While the details for every area are different \u2014 check with your local tax assessor to find out exactly what you need to do \u2014 the broad strokes are the same. You\u2019ll file your appeal and the local assessor will either approve it or deny it.<\/p>\n\n\n\n What Tax Items Should Think About When Selling My Home?<\/p>\n\n\n\n When you sell your home, you can take all typical homeowner tax deductions for the period of the year you owned the house, as well as deducting some of the expenses of selling the home. As long as the home is a principal residence and you\u2019ve lived in it for two of the five years preceding the sale, you can deduct or exclude costs such as:<\/p>\n\n\n\n Capital gains taxes on sale profit are another concern, but many sellers won\u2019t have to pay these. As long as sellers don\u2019t make a profit of over $250,000 (or $500,000 for a married couple filing jointly) and they\u2019ve lived in the home for two out of the past five years, they should be excluded from capital gains tax.<\/p>\n\n\n\n Consult a tax professional before filing<\/p>\n\n\n\n While we\u2019ve presented the basics, every tax situation is different. Please consult a tax adviser for further information regarding the deductibility of interest and charges<\/p>\n","protected":false},"author":7,"featured_media":103925,"menu_order":0,"template":"single-native-legacy","meta":{"_acf_changed":false,"_acf":"","_yoast_wpseo_primary_category":"11"},"advertiser":[3439],"class_list":["post-63490","native","type-native","status-publish","has-post-thumbnail","hentry","advertiser-penfed"],"acf":{"subheadline":"","legacy_arc_id":"OVQBDIEVUNDHJCP3XXEAI2E4XI","arc_canonical_url":"\/native\/penfed\/2019\/04\/17\/mortgage-interest-and-tax-deductions-for-homeowners\/","remove_feature_photo":false,"is_sponsored":false,"subtype":"native-layout","redirect_url":"","disable_inline_ads":false,"native_logo_pretext":"Presented By:"},"yoast_head":"\n