Buying a home is, of course, a huge purchase. The great thing about it, though, is that owning a home is (most of the time) a good investment. In addition to the fact that buying a home makes you money in the long run, it also provides you with certain tax benefits. If you want to make the most of those tax benefits, check out our tax tips for homeowners in Woodland Park.
Understand the New Tax Laws
With the implementation of The Tax Cuts and Jobs Act, the tax laws changed (in some ways pretty dramatically) at the end of 2017. So as the first of our tax tips for Woodland Park homeowners, we strongly recommend boning up on the new tax laws. It may turn out that you don’t even need to go to all the trouble to itemize now.
Heres what the tax pros have to say concerning the increased standard deduction: “Tax returns that included a Schedule A, which applies to deductions like home mortgage interest, made up just 10.1% of total returns in 2018, a reduction from nearly 30% the previous year . . . Far more people are taking the standard deduction now because it’s so much greater than it used to be.”
Take Advantage of the Deductions
Now if you do decide that itemizing and taking advantage of the available deductions is right for you, you need to plan carefully to make the most of it. Done right, it can result in significant savings.
Expenses that are eligible to be used as itemized deductions include:
- Mortgage loan interest – “If you took out a mortgage on or after Dec. 15, 2017, you may be able to take a mortgage interest deduction on up to $750,000 of mortgage debt for your primary residence. If your mortgage predates Dec. 15, 2017, the limit is $1 million. Interest paid on your home equity loan or line of credit may also be deductible if you used the money to buy, build or substantially improve the house that secures the loan.”
- State and local taxes – This is especially beneficial for people in high property tax areas. “For federal tax returns, the law allows taxpayers to deduct up to $10,000 ($5,000 if married filing separately) of the total of your state and local property taxes plus either income taxes or state and local sales taxes.”
- Medical expenses – This is allowed for some medical expenses not covered by insurance.
- Charitable donations – “If you made a tax-deductible donation to a qualified charity, you can add it to your total itemized deductions. In most cases, you’re allowed to deduct cash contributions that equal up to 60% of your adjusted gross income.”
Stay Organized and Keep Receipts
Filing easily and accurately, especially with respect to deductions, means staying organized and keeping receipts. We’ve included this among our tax tips for homeowners in Woodland Park because so many people neglect to do it.
Most of your federal income tax deductions and/or credits demand detailed records of the pertinent expenses. So keep your records and receipts and keep them organized in a systematic fashion that allows for easy retrieval. Most experts advise keeping both hard copies and digital documents for safety’s sake.
And you will certainly want to keep any and all receipts, contracts, and invoices related to home improvements. “If you make any improvements to your home, the expenses aren’t deductible for the current tax year. But when you sell the home in the future, they can help lower your tax burden then. That because you can add home improvements expenses to your adjusted basis.”
Use Your Energy-Efficiency
Among the tax tips for homeowners in Woodland Park, this one is becoming applicable to more people every year. If you have installed a solar energy system or made energy efficiency improvements to your home, you are likely eligible for certain tax credits, both federal and local.
According to IRS rules, you can take a tax credit for 30% of the cost of solar energy system installation. Keep in mind too that if you’ve been considering installing such a system, you should take action now. The tax credit will decrease to 26% for the 2020 tax year and then to 22% for 2021- and then it will be gone.
Don’t Forget Home-Office Expenses
Because more and more people are working from home, we’ve also included this among our tax tips for homeowners in Woodland Park. If you are self-employed – and that’s the key part – you may be able to deduct a portion of your business-related expenses. Bear in mind, though, that under the new tax laws, you can’t take deductions for your home office you are simply working remotely as an employee.
These tax tips for homeowners in Woodland Park are a good starting point. But you should also consult a tax professional and/or financial planner to ensure the maximization of tax benefits as well as legal compliance. And then if you are buying or selling a home, timing becomes critical with respect to taxes. Make sure you get it right with a good real estate agent. Our agents are ready to help.