COVID-19 changed a lot about our lives, but the question is whether it affected our tax return for homeowner benefits.
The 2018 overhaul of the U.S. tax code changed the tax perks of homeownership, and those changes are still in effect today. The filing deadline for this year is the usual April 15, but the IRS won’t start accepting 2020 tax returns until February 12, 2021.
From mortgage interest to home office allowances, we offer these handy tips on tax filing for 2020 from Realtor.com. Rules are strict, however, so consult your tax attorney or the IRS guidelines for all details.
Mortgage interest is an itemized deduction. To take it, your itemized deductions should be greater than the standard deduction, which was increased for the 2020 tax year.
For individuals, the deduction went up slightly this year and is now $12,400 and $24,800 for married couples filing jointly, plus $1,300 for each spouse aged 65 or older. The deduction also went up to $18,650 for head of household, plus an additional $1,650 for those 65 or older.
Homeowners with a mortgage that went into effect before Dec. 15, 2017, can deduct interest on loans up to $1 million. But for mortgages incurred after Dec. 15, 2017, interest can only be deducted on the first $750,000, reports Realtor.com in a quote from Lee Reams Sr., chief content officer of TaxBuzz.
For homeowners with recent mortgages, the first payments are predominately interest. This could make itemizing work in your favor.
The property tax deduction is capped at $10,000 if you are married filing jointly. Your property taxes are built into your monthly mortgage payment. You may want to put this on your list of itemized deductions before you tally them all to see if they are higher than the standard deduction.
Private Mortgage Insurance
If you put less than 20 percent down on your home, you are probably paying private mortgage insurance (PMI). The interest on PMI can be deducted due to the Mortgage Insurance Tax Deduction Act of 2019. And the credit is retroactive, so you may want to amend your 2018 or 2019 tax return if you missed it in these years.
Energy efficiency upgrades
The credits for solar electric and solar water-heating equipment are available through Dec. 31, 2021, as a result of the Residential Energy Efficient Property Credit. The SECURE Act also retroactively reinstated a $500 deduction for qualified energy-efficient upgrades like exterior windows, doors, and insulation, according to Realtor.com. Since these are tax credits, there is no need to itemize. For equipment installed between Jan. 1, 2020, and Dec. 31, 2020, 26% of the cost can be credited.
Your home office
If you are self-employed, you can deduct some costs if a dedicated space in your home serves as your main place to work. The rules are strict, but if you meet all the requirements you can deduct $5 per square foot, up to 300 square feet, of office space, which amounts to a maximum deduction of $1,500. See the link below for more information.
But here’s where the pandemic is not impacting us. This deduction is not available for W-2 employees, even if it has been your main place of work for most of 2020.
Improvements for aging at home
If you can get a letter from your doctor to prove changes in your home were medically necessary, this tax break may be for you. To qualify, the cost of the improvement needs to exceed 7.5% of your adjusted gross income. For older homeowners, deductible renovations could include wheelchair ramps, bathroom grab bars, widening doorways, lowering cabinets, or electrical fixtures, and adding
Home equity loan interest
If you use a home equity line of credit to buy, build or improve a property, the interest you pay on that loan is deductible. Check the IRS rules for further requirements.
• For the full story, visit: realtor.com/advice/finance/tax-benefits-of-owning-a-home-guide-to-filing.
• For more about the home office deduction see: realtor.com/advice/finance/how-to-take-a-home-office-tax-deduction.
By Tom Kalinski. Tom is the broker/owner of RE/MAX of Boulder, the local residential real estate company he established in 1977. He was inducted into Boulder County’s Business Hallof Fame in 2016 and has a 40-year background in residential and commercial real estate. For questions, e-mail firstname.lastname@example.org, call 303.441.5620 or visit boulderco.com.