Your home is your castle, and it is also a source of tax deductions. Yet, every year, Americans let these potential tax deductions pass by, not realizing how to take advantage of them. Complicating matters, the Tax Cuts and Jobs Act of 2017 has made major changes to the tax breaks that every homeowner should know.
IRS Publication 530, titled "Tax Information for Homeowners", can fill you in on the deductions that are available to you for the 2017 tax year. Several of the most important tax benefits are listed below.
- Mortgage Interest – This should be the largest home-related tax deduction that is available to you unless you purchased your home late in the 2017 tax year. If you bought your home before December 15, 2017, you can deduct interest payments on either primary or secondary homes, up to the limit of $1 million in collective mortgage debt if married and filing jointly, or $500,000 for single filers or married couples filing separately. Under the new tax law, if you purchased your home on or after December 15, 2017, you may only deduct interest payments on up to $750,000 in mortgage debt.
The mortgage interest deduction applies to anything that meets the definition of a basic living space that you own. Condominiums, mobile homes, and even boats are included assuming that they meet the living space definition with at least one sleeping area, a kitchen, and a toilet. Details may be found in IRS Publication 936, "Home Mortgage Interest Deduction."
- Points – Any points that you paid at closing to lower the interest rate on your mortgage are deductible. Generally, the deductions must be amortized over the life of the mortgage, but there are circumstances where you may be able to deduct the entire amount of your points paid in the year of purchase. See Publication 530 for details.
- Property Taxes – You can deduct real estate taxes that are assessed uniformly (no taxes that reflect a special privilege or a service granted to you). Property taxes associated with the purchase of a home may also be deducted. Under the Tax Cuts and Jobs Act, the deduction is capped at a total of $10,000 for all property taxes, sales tax, and state and local taxes starting in 2018.
- Mortgage Interest Credit – Typically, mortgage interest is taken as a deduction. However, if you have a qualifying low income, you can claim mortgage interest as a credit instead. This subtracts the total directly from your tax bill instead of from your taxable income used to determine your tax bill. To claim this credit, you must have received a qualified Mortgage Credit Certificate from a suitable state or local agency. File Form 8396 along with your tax form to claim your credit.
- Home Equity Loans – If you borrowed against your home equity in 2017 or prior, either with a loan or a line of credit (HELOC) up to $100,000, the interest may be deductible depending on how the loan was used, the amount of the loan, and the value of your home. This tax credit has been eliminated by the new tax law from 2018 onwards, including on existing loans.
- Forgiven Mortgage Debt – When a bank decides to accept a short sale for less than the value of a home and forgives the rest of the debt, that debt is usually considered as taxable income. In 2007, Congress created the Mortgage Forgiveness Debt Relief Act to reclassify the forgiven debt as non-taxable income, saving already distressed homeowners from a huge tax burden. After being renewed several times, this tax relief measure expired at the end of 2016 and has not been renewed by Congress. However, the good news is that if 'you discharged any mortgage debt from 2007 to 2016 and signed a written agreement with the lender before 2017, you're still eligible for this tax exemption when you file your 2017 return. What's no longer covered is any mortgage debt cancelled in 2017 or beyond.
Check the IRS publications and see if any of these valuable deductions apply to you. Take advantage of every tax deduction that you can. Otherwise, the government simply keeps more of your money.
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Originally Posted at: https://www.moneytips.com/top-tax-benefits-of-home-ownership