by Phillip B. Burum, DR Horton,
President, Building Industry Association (BIA) Baldy View Chapter
The tax benefits afforded by homeownership are among the most important advantages homeowners enjoy. From tax breaks for home-based businesses to deductions for the interest on mortgage loans and real estate taxes to capital gains exclusions for sales of a principle residence; homeownership offers a wide variety of tax benefits available only to homeowners.
The home is the biggest and best investment most Americans will make in their lifetimes, so homeowners should always consult with a certified tax professional even if they are filing themselves. This is especially important this year because of the significant changes to those benefits due to the recent Tax Cuts and Jobs Act (TCJA), for the tax years 2018 through 2025.
The most important of these benefits may be the Mortgage Interest Deduction or MID. According to the National Association of Home Builders (NAHB), homeowners who itemize their federal income tax deductions can deduct 100 percent of their mortgage interest payments on a first or second home for up to $1 million of mortgage debt. The Mortgage Interest Statement Form 1098, which homeowners receive from their lenders, shows the total amount of home mortgage interest paid during the year.
The biggest change in the MID according to real estate writer Margaret Heidenry is that the new tax bill allows homeowners with a mortgage that went into effect before Dec. 15, 2017, to continue to deduct interest on loans up to $1 million. However, for anyone who closed on a mortgage after that, the cap for deducting interest becomes $750,000 which is a combined total for first, second, and any other homes.
Other changes Heidenry notes include the Real Estate Tax Deduction (which allows homeowners to deduct state and local real estate taxes on an owner-occupied home) and the Capital Gains Exclusion. This means that many homeowners won’t have to pay capital gains taxes on the profit from the sale of a home. She notes that “(u)nder present law, married couples who have owned and occupied their principal residence for at least two of the past five years do not have to pay any taxes on the first $500,000 in profits from the sale of their home. Single filers earn up to $250,000 tax free”.
Under the new rules, property taxes will now be included into a single deduction that includes it as well as state and local sales and income taxes and is capped at $10,000 for those married filing jointly.
Another deduction homeowners may be able to take is for private mortgage insurance (PMI) premiums. While the deduction had expired, the new tax bill retroactively made the deduction available for the 2017 tax year. Under the new rules, this deduction is for itemizers only and the 2018 tax law nearly doubles the standard deduction.
Other benefits include The Residential Energy Efficient Property Credit - a tax incentive for installing alternative energy upgrades in a home. While some of these credits expired last year, two credits are still available for solar electric and solar water heating equipment through December 31, 2021. Under the new rules, the percentage of the credit will vary based on the date of installation.
Interest paid on a Home Equity Line of Credit (HELOC) taken out in 2017 will also be deductible. If a homeowner took out a HELOC, in 2017 or earlier, the interest paid on that loan is also deductible. However, under the new rules, this tax deduction has to be used specifically to "buy, build, or improve a property," according to the IRS.
Remember, I am not a tax expert and don’t even play one on TV, so homeowners need to check with their tax professional about any specific local, county or state benefits available to them as well.
Thanks to these and the several other benefits of homeownership, buying a home offers tax savings that can add up to tens of thousands of dollars over several years and prospective buyers can take these deductions into consideration when choosing homeownership over renting.
The BIA Baldy View Chapter seeks to advance the opportunity to attain the American Dream of home ownership. For additional information on home buying or the benefits of homeownership, go to www.biabuild.com on the web.
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