It’s tax filing season again, and every deduction and credit counts.
The new tax bill impacts income earned in 2018, so most of the effects won’t show up on this year’s tax return. That means that, unless you have made major changes, your tax bill due April 17 will look a lot like last year’s.
That’s good news for most homeowners.
The main expenses homeowners can claim on their tax return if they itemize items, according to guidance from the Internal Revenue Service’s efile.com website, are:
• Home mortgage interest payments, which are usually reported on Form 1098
• Real estate taxes
• Mortgage points, with each point equal to 1 percent of the loan amount
“The annual mortgage interest you pay on your home mortgage loan is the most significant deduction available for homeowners and saves homeowners tens of billions of dollars every year,” the IRS notes.
This year you can deduct the interest paid on mortgages of up to $1 million, as long as those mortgages are on your primary residence or a second home that meets certain requirements, and the home was purchased before Dec. 15, 2017. Some or all of the interest on home equity lines that are used for home improvements also can be deducted.
For first or second homes purchased after Dec. 15, the deduction is limited to interest paid on a mortgage up to $750,000, but does not include interest on most home equity loans.
Real estate taxes – meaning the property taxes you pay to the county each year – are currently fully deductible for homeowners who itemize.
This deduction is modified in the new tax law, so your ability to claim this deduction in the future may change.
And if you paid “points,” sometimes called “loan origination fees,” when you took out your mortgage, those two are deductible. Points are usually paid to obtain a lower interest rate. Depending on the circumstances, they may be deductible in the year you paid them or over the life of the mortgage.
Other benefits that are sometimes available to homeowners include uninsured losses, such as from fires, floods, earthquakes, storms or theft; the cost of maintaining a qualifying home office; and unreimbursed job-related moving expenses.
The rules regarding both uninsured losses and moving expenses are changing as a result of the tax bill.
Currently, uninsured losses are defined by the IRS as any accidental, or casualty, losses that are “sudden, unexpected and unusual.” Losses not considered accidental include those resulting from such things as termite or other pest damage, or pipe corrosion.
Accidental losses must exceed 10 percent of the taxpayer’s adjust gross income to be considered a deductible expense.
Some homeowners who work at home can deduct some of their home expenses, as long as they meet certain fairly strict criteria.
“The business portion of the home must be used regularly and exclusively for business, and must be either a principal place of business; a place where the homeowner meets patients, clients or customers; or a separate unattached structure,” according to guidelines listed on the IRS website.
For most of us, home-related expenses that cannot be deducted, according to the IRS, include:
• Fire, flood or homeowner insurance payments
• Amounts paid to reduce your mortgage principal
• General home improvement and maintenance expenses
• Mortgage Insurance Premium payments
• Home energy savings
Some home-improvement expenses may be eligible for credits.
The Energy Efficient Home Improvement credits passed by Congress expired on Dec. 31, 2016. But they were re-installed for 2017 as part of the two-year budget deal passed on Feb. 9. The IRS is still reviewing the massive legislative agreement, so check with your tax accountant for updates.
The original legislation provided for credits of up to 30 percent of the total cost of installing certain renewable energy sources in your home, such as geothermal heat pumps, solar water heaters, solar panels, small wind turbines up to costing up to $4,000 and fuel cells costing up to $500 per 0.5 kilowatt power capacity, as well as up to $500 in credits for other energy-efficient upgrades.
Whether the rules for improvements made in 2017 will be the same is still being determined.
Most people who sold homes last year will benefit from the capital gains exemption. Through 2017, single homeowners can exempt the first $250,000 earned on the sale of their primary residence, as long as they have lived there two of the last five years. For married couples, the exemption is doubled.
If your earnings were higher, consult your tax advisor about what costs you may be able to deduct when calculating the capital gain, so you get the full benefit of this credit.
The capital gains exemption does not change in the new bill, so those selling in 2018 will likely be able to take advantage of it on next year’s return.
If you bought, sold or owned a home in 2017, consult your trusted tax advisor about benefits you can claim on this year’s tax return.
If you do not know a good tax consultant, ask your local Realtor to refer you to someone.
Cher Wollard is a Realtor with Berkshire Hathaway HomeServices Drysdale Properties, Livermore.