When it comes to buying a home, your primary goal might be having a place of your own to grow old and raise your family. But, there are plenty of other perks too, and a big one is the tax benefits that come with homeownership.
For many, that’s an attractive bonus, regardless of buying for yourself or as an investment property. However, you still need to keep an eye on tax rules and regulations because they can (and often do) change over time. For some benefits, that time is now.
As part of the Tax Cuts and Jobs Act (TCJA), which became law in late 2017, new regulations are now falling into place. Some will impact your tax benefits of owning a home.
Tax benefits for homeowners in 2021
Most homeowners know about the basic tax advantages of homeownership. But there are a few other benefits you might not realize you can take advantage of this year.
- Residential energy credit: This credit expires at the end of 2021, but it’s a tax credit for homeowners who make energy-efficient improvements to their homes. The credit ranges from 22 to 30% of the cost of improvements.
- Home office deduction: If you are self-employed and work from home, you can deduct both home office expenses and the space that’s exclusively used for your office, up to a square foot limit.
- Private mortgage insurance (PMI) deduction: If you bought your home after 2006, you might be able to claim a PMI deduction if you qualify based on your adjusted gross income. It’s will expire after the 2020 tax year.
- Rental expense deduction: If you have a rental or vacation home, or if you rent out a part of your residence, you may be able to claim rental expenses. Note, you’ll still owe tax on your rental income.
Tax changes homeowners need to know
There are still plenty of tax benefits for homeowners, but due to changes in the tax code, there are some differences you’ll want to know so you can best determine how to maximize your benefits.
Deducting mortgage interest
Ask any homeowner, and they’ll tell you one of the most significant tax advantages of homeownership is being able to deduct mortgage interest. While mortgage interest deduction is still available to homeowners, the amount has changed.
Now, if you bought your home after the TCJA was signed, December 17th, 2017, you can only deduce mortgage interest up to $750,000 for both single filers and married joint filers. If you bought before that date, you can still deduct mortgage interest up to $1 million for individual and married joint filers.
If you have a second home, such as an investment property or vacation home, you can deduct that mortgage interest amount, too. However, both mortgages combined must be less than the limits.
Deducting property tax
Another significant tax benefit of homeownership is deducting property taxes. In the past, if you itemized your expenses, you could deduct your property taxes. Starting in 2018, the TJCA put a cap of $10,000 in state and local property taxes combined was put in place. If you take the standard deduction, you won’t be able to deduct any property taxes.
If you live in a state with high property taxes, you’ll need to determine if itemizing or claiming the standard deduction, which did increase in 2021, is the best way to maximize your benefits.
Deducting home equity loans
Your home’s equity is the value of the part of the house that you currently own. Many people use that money to take out a home equity loan. These loans can be used for various needs, from improving your home’s curb appeal to paying off debts.
Previously, you could deduct up to $100,000 in interest on home equity loans, regardless of what you used the money for, even if it wasn’t specifically home related. You can currently deduct the interest on the loan only if used for home upgrades, improvements, or repairs. The loan amount is now also included in the $750,000 or $1 million mortgage interest deduction limit, depending on when you purchased your home.
Now that you have a better understanding of the tax benefits for homeowners in 2021, you might decide you want to explore your options when it comes to homeownership.
If you’re thinking about buying a home, OVM is here to help, no matter the housing market conditions or changes. Get in touch today and speak with our team of loan experts. Or, if you’re ready to get started, give us a call or click here to begin your application.
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