Tax Deductions For Homeowners

In 2017, the Tax Cuts and Jobs Act was passed. Commonly known as the Jobs Act, this marked the most significant change made to the US tax system in 30 years. Given these sweeping changes, homeowners can expect to see different deductions when they file their 2018 tax returns.

Prior to 2018, homeowners often itemized their deductions. This allowed them to deduct all or a portion of their property, state, and sales taxes, mortgage interest, medical expenses, charitable deductions, and many other expenses. With the Jobs Act, however, the standard deduction threshold was raised, income tax brackets were lowered, and personal exemptions were eliminated. For many homeowners, it was more beneficial to go with the set standard deduction instead of itemizing deductions. If your deductible expenses exceeded the standard deduction amount, then you would go with the itemized deduction approach. Below we discuss tax deductions that are still available to homeowners and families today.

Deductions for your Home

Mortgage Interest – If you purchased your home after December 31, 2017, you can deduct up to $750,000 of mortgage interest if you are married, filing joint or $375,000 each if married, filing separately. For homeowners that bought their homes before December 31, 2017, the mortgage interest deduction to $1 million, or $500,000 if married, filing separately.

Real Estate Taxes – If you are able to itemize, you can deduct the amounts that you pay for real estate taxes. What’s different for 2018 is that the deduction for all tax payments is limited to $10,000.

Home Equity Loan Interest Deduction – Before January 1, 2018, homeowners could deduct the interest that they paid on home equity loans. Homeowners can still deduct this interest only if the home equity loan was taken out to improve the home. If the loan was taken out to finance another purchase or just to pay living expenses, any interest paid cannot be deducted.

Moving Expenses – If you are an active member of the military, you are still able to deduct moving expenses.

Deductions for your Family

If you have a family, you may be able to take advantage of certain deductions and credits, even if you don’t own your home. These include;

Child tax credit - As part of the Jobs Act tax changes, the standard deduction was increased but the personal exemption amounts were eliminated. To accommodate for the loss of the personal exemption, the child tax credit was doubled in 2018. Families are able to take a credit for the number of children living in their home, based on certain stipulations. Up to $2,000 in child tax credit is available, per child, if they are under 17 years old. A credit is different from a deduction in that it directly reduces the amount of tax that you owe.

Another perk to the child tax credit – it is now refundable up to $1,400 per child. What does this mean? If you don’t owe any taxes but are eligible for one child tax credit, you’ll get a refund of up to $1,400.

Medical expenses – If you or a dependent family member has significant medical bills, you may be able to deduct a portion of this on your tax return if you itemize your deductions. If you are paying for your medical expenses out of pocket and aren’t getting reimbursed for them, you can deduct the portion that exceeds 7.5% of your adjusted gross income, commonly known as AGI.

If you have adjusted gross income of $50,000, any unreimbursed medical expenses that exceeds $3,750 ($50,000 x 7.5%) can be deducted if you itemize. Starting January 1, 2019, the threshold is increased to 10% of your AGI. Under the same example, you could deduct any medical expenses that exceeded $5,000 ($50,000 x 10%).

In connection with the Jobs Act, the deductions and credits that homeowners were once able to take advantage of have been changed. While a homeowner may not be able to write-off what they had in the past, the increase in the standard deduction should help to offset this. It may also make filing your tax return easier as there is less to keep track of. For those homeowners who are raising a family, the child tax credit can help to reduce taxes that are due.