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November 19, 2018

Eight Ways to Save on Taxes As a Homeowner


One of the major advantages of moving on from the rental market to homeownership is the many tax breaks you can take advantage of saving up to thousands of dollars. In 2017, the Tax Cuts and Jobs Act (TCJA) closed or reduced many of these tax benefits, but there are still opportunities that can reduce your tax liability as a homeowner. To find out which of these regulations apply to your personal situation, please consult your accountant.


1. Mortgage Interest Payments

If you purchased a home on or before December 14th, 2017, you were allowed to deduct interest payments on mortgage debt of up to $1,000,000. The TCJA reduced this amount to a maximum of $750,000 of mortgage debt for which you can deduct interest payments if your home purchase is made between 2018 and 2026.


2. Points on Mortgage

Since points on a mortgage are considered prepaid interest, you are able to deduct points as you would interest payments on your mortgage under the same qualifications.


Save on taxes with mortgage points



3. Property Tax

Property taxes paid to the state and local governments are deductible as well, however, the amount you can deduct has changed with the enactment of the TCJA. As opposed to being its own separate deduction, property tax is now grouped together with the rest of your state and local taxes. The total amount eligible for deduction between your property tax, state, and local taxes is capped at $10,000.


4. Home Office Deduction

Under conditions that your home office was exclusively used for work purposes, you once were able to take deductions relating to expenses associated with your office space. However, this was eliminated with the TCJA for those who are employed by a company. If you are self-employed, you can still deduct expenses relating to your home office.


5. Private Mortgage Insurance (PMI)

The PMI deduction (with an original expiration date of December 31, 2016) was extended on February 8th, 2018 with the passage of Bipartisan Budget Act of 2018 which allows qualifying homeowners to deduct mortgage insurance payments in 2017. PMI payments are deductible if you purchased your home after 2007, is used as your primary residence and your adjusted gross income does not exceed $100,000 or $50,000 if married filing separately. This clause is reviewed annually, so inquire with your account if you are eligible to deduct your PMI payments.


6. Energy Efficiency Credits

Although energy efficiency tax credits expired at the end of 2016, the Bipartisan Budget Act of 2018 reinstated them retroactive to 2017. These include tax credits for energy efficient property costs and improvements as well as the utilization of renewable energy.


Helpful Links:


Energy efficiency with solar



7. IRAs

If you are purchasing a home for residence for the first time, you are allowed to withdraw up to $10,000 from your IRA to be used as a down payment and avoid paying any early withdrawal penalties. Since most of the time, the money in your IRA is pre-tax investments, you will have to pay taxes on your withdrawals. If you withdraw from your Roth IRA, your investments have already been been taxed and your money grows tax-free in this investment vehicle, so a withdrawal for a first-time home purchase would not have any tax consequence. Please consult your accountant for details.


8. Home Equity Loan Interest

Prior to the enactment to the TCJA, you were able to deduct all interest paid on a home equity loan for a loan not exceeding $100,000. The TCJA only permits deducting this interest if the loan is to be used for home and property improvements to the residence backing the loan, including building an addition. The total of the original mortgage and home equity loan must not exceed $750,000 in order to take advantage of this deduction. The IRS explains how this would work under the new law and your accountant would be able to advise you on your own personal tax liabilities.


Helpful Links:


This is only meant to be a guide. If you have specific legal or tax questions please consult an attorney or accountant, respectively.




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