Photo by Kelly Sikkema on Unsplash
by Jim Perry, William Lyon Homes,
President, Building Industry Association (BIA) Baldy View Chapter
Today, older homeowners remember long lines of cars snaking around the local post offices on every April 15, as a relic of a pre-digital world. While a multitude of tax programs and services have considerably diminished this tax day headache, these offer a new palette of tax season opportunities and challenges for homeowners.
The home is the biggest and best investment most Americans will make in their lifetime and one of the key reasons that makes homeownership a prudent financial undertaking is the number of tax benefits available only to homeowners. However, tax laws are fluid and change from one tax season to the next – especially since the passage of the Tax Cuts and Jobs Act (TCJA) for Tax Years 2018 through 2025, which lowered some tax rates and raised some of the income thresholds for those rates. This is why today it is more important than ever that homeowners – especially new homeowners - seek professional assistance when filing their tax returns.
Today regional homebuilders take a great deal of pride in pointing out that San Bernardino County anchors affordability in one of the most desirable destinations in the nation: Southern California. According to recent reports from the leading Southern California analytics firm CoreLogic, the median (the price at the midpoint of all sales) home values in San Bernardino County still hover at around $336,000. While that is less than two-thirds of the overall Southern California median price of $518,500, that is still a lot of money.
So, when you sit down this year to start your taxes, approach every detail of your personal tax preparation in the same manner you would any major investment or business. Remember: the government historically has adopted policies and regulations that encourage homeownership and many of these policies come in the form of tax benefits. Making the most of these tax benefits is a key avenue to maximizing your investment in your home.
The most important of these tax benefits is the Mortgage Interest Deduction (MID). This allows homeowners who itemize their federal income tax deductions to deduct as much as 100 percent of their mortgage interest payments on a first or second home. The Mortgage Interest Statement Form 1098 (which homeowners receive from their lenders) shows the total amount of home mortgage interest paid during the year. Since the bulk of the interest paid occurs in the early years of the mortgage, this translates to a major benefit for homeowners.
Other major tax benefits 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. The Residential Energy Efficient Property Credit offers 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.
Homeowners should inquire as to other possible deductions available after installing certain specific home improvements to meet medical needs or enable aging-in-place such as wheelchair ramps, grab bars, widening doorways, lowering electrical fixtures or cabinets, or even stair lifts.
The government also offers a wide range of tax breaks to encourage and assist homeowners working or operating businesses from their home. The United States Department of the Treasury Internal Revenue Service at www.irs.gov offers Publication 587 - Business Use of Your Home (Including Use by Daycare Providers) which enables homeowners to determine what costs can be deducted from their taxes. The percentage of the home’s overall expenses such as mortgage interest, real estate taxes, homeowners' insurance, utilities and maintenance - as well as an allowance for depreciation – may be deductible.
As we like to say in the homebuilding industry, today’s home offers more than shelter from the storm. When it comes to taking advantage of all these tax benefits available to homeowners, your best bet will be to have your taxes calculated by, or after consultation with, a trained professional.
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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